The Hungarian forint rose on Tuesday, helped by technical factors, and as a slight pickup in Polish inflation supported currencies across Central Europe. While euro zone inflation slowed more than expected in May data showed on Tuesday, annual inflation in Poland edged up to 2.3% from 2.2% in April.
Poland is the first major economy in Central Europe to report monthly inflation data. Its figures often provide clues about trends in the region, where inflation has picked up this year. The rise in Polish inflation in May was smaller than expected, but kept intact expectations it will rise further, possibly beyond the middle of the Polish central bank's (NBP) 1.5-3.5% target range.
Marcin Luzi?ski, economist at Santander Bank Polska, said inflation could exceed 3 percent by around the end of the year, supporting the arguments of hawks in the NBP. "We expect that somewhere at the beginning of 2020 the discussion about interest hikes will be advanced already and we do not rule out rate increases," he said.
The zloty set a one-month high against the euro, and was trading at 4.279 at 0907 GMT, a shade firmer from Monday. The region's currencies have firmed in recent weeks, supported by a weakness in the dollar due to strengthening expectations that the Federal Reserve's next interest rate move will be a cut.
The forint strengthened by 0.4 percent on Tuesday to 321.9 to the euro. It set a six-week high, extending the gains seen around the publication of robust Hungarian PMI manufacturing figures on Monday. "It has been firming (due to technical factors) after it failed to weaken through 327 three times (last month)," one Budapest-based dealer said, adding that the currency could be near resistance levels now.
While the Hungarian central bank is unlikely to increase interest rates at its meeting late this month, a surge in wages across the region may push the Czech central bank towards further rate rises, market participants said. The average Czech real monthly wage rose by 4.6% year-on-year in the first quarter, compared with analysts' 4% forecast.