BUDAPEST: Central European currencies traded around four-week lows against the euro on Tuesday as US Treasury yields hit multi-year highs, while Hungary’s central bank reaffirmed its loose policy.
The forint, the Czech crown and the zloty eased less than 0.1 percent by 1311 GMT, but their fall came after a bigger drop on Monday when money flowed into dollar assets.
Regional financial asset prices hardly moved on Tuesday as investors waited to see if the 10-year US Treasury bill yield would breach the key 3 percent line.
“If it does, in a couple of days long-end yields could go up by 20 basis points (in the region),” one Budapest-based fixed income trader said.
“Even worse, if the European Central Bank issues any hawkish hints (after its meeting on Thursday),” the trader added.
Higher debt yields in core markets would make the region’s assets relatively less attractive.
Central Europe’s long-term bond yields traded around multi-week highs on Tuesday.
Hungary’s 5- and 10-year yields rose 2-3 basis points to 1.32 and 2.52 percent, respectively, even though the central bank repeated after its meeting that it would seek to maintain loose monetary conditions across the yield curve.
The bank, led by a key ally of Prime Minister Viktor Orban, holds its first meeting since the ruling party secured a tight two-thirds parliament majority at elections on April 8.
Inflation has been mild in most of the region this year.
An earlier rise in the Czech Republic and a surge in Romania since late last year prompted central bank rate hikes, while Hungarian and Polish rate setters have not showed worries over inflation.
The crown firmed only briefly after Czech National Bank board member Marek Mora was quoted as saying that the crown had strengthened more slowly than expected.
The bank has forecast the average crown rate to firm to 24.9 versus the euro in the second quarter. It traded at 25.45 on Tuesday.
The leu was steady at 4.654 against the euro after Romanian President Klaus Iohannis offered to mediate between the ruling party and the central bank in a row over inflation, which jumped to 5 percent in annual terms in March, the highest since 2013.
Late last week, the leader of the Social Democrats lashed out against criticism that a surge in inflation was driven by his party’s fiscal and income policies, accusing the central bank of exaggerating the impact of higher trade deficits.
Source: Brecorder
