BUDAPEST: Central European currencies steadied near multi-week highs on Thursday, supported by a weakening of the dollar and ahead of a government bond auction in Hungary that saw solid demand.
The forint traded a touch firmer against the euro at 316.45 at 0939 GMT and may soon head towards 9-1/2-month highs at 315, market participants said.
Expectations that the Hungarian central bank could start to nudge short-term market interest rates slowly higher next month has buoyed the forint.
The region's currencies also drew support this week from the comments of Federal Reserve head Jerome Powell who stuck to a "patient" stance on further US interest rate increases.
Hungarian government bonds steadied after some rise in yields on Wednesday tracking US and German yields.
The Hungarian debt agency AKK sold 88.5 billion forints worth of government bonds at an auction on Thursday , 18.5 billion forints more than the original offer, and will also hold a top-up sale later in the day.
The government offered a new 3-year paper at the auction which was only the second sale of a new 10-year bond.
Demand was moderate for the new paper, as usual, and strong for the 5- and 10-year bonds. The 5-year bond was sold at 2.21 percent, a slightly lower average yield than two weeks ago, while the 10-year yield rose 2 basis points to 3.16 percent.
Comments by Prime Minister Viktor Orban on Wednesday that all state debt should be held by Hungarians in the longer term is unlikely to deter foreign investors, one Budapest-based trader said.
"We are still analysing what that could mean, together with the central bank's 300-page proposal (to enhance the economy's competitiveness)," the trader said.
Elsewhere, the zloty firmed 0.1 percent to 4.3125 versus the euro, while Polish government bond yields resumed Monday's rise after the ruling Law and Justice party, preparing for elections, signalled a spending spree.
The 10-year Polish bond yields rose to 2.837 percent from Wednesday's 2.814 percent close.
The finance ministry is expected to work out the details of the planned tax reform by the end of the week, the daily Dziennik Gazeta Prawna said.
Central European markets including stocks were rangebound and mixed, while MSCI's emerging market share index fell 0.6 percent as hopes faded for a US-China trade deal and the US-North Korea summit brought no success.
Budapest's main index fell 0.3 percent, driven by OTP Bank shares, which briefly pierced a key resistance level at 11,850 forints on Wednesday but retreated to 11.650 forints on Thursday.
The Budapest-based regional bank, which reported a new acquisition on Thursday, is due to report fourth-quarter earnings early on Friday.