BUDAPEST: Central European currencies tracked the euro's rebound against the dollar on Monday after an early weakening on expectations that rising US interest rates will erode the appeal of emerging market debt.
US economic output data on Friday stirred speculation that the Federal Reserve could start to raise interest rates sooner than expected.
By contrast, interest rates are expected to stay at record low levels in Central Europe, and also in the euro zone, as central banks fight deflation risks and economic slowdown.
The Romanian central bank is expected to cut its main interest rate by a quarter percentage point on Tuesday to 3 percent and Poland's central bank is seen reducing its 2.5 percent main rate next week.
The Romanian leu eased 0.1 percent from Friday against the euro by 1420 GMT and the Polish zloty and the Czech crown were also a tad easier.
Polish markets have priced in cuts of 100 basis points in the central bank's 2.5 percent main interest rate. Polish central bank rate setters tried to cool expectations on Monday.
Elzbieta Chojna-Duch told Reuters that it would be optimal to cut rates by 50 basis points in October and see later if more is needed, adding that excessive easing could hurt the economy.
Another monetary policymaker, Jerzy Hausner, said he was not convinced that lowering interest rates could stimulate economic growth and fuel inflation at present.
FORINT LEADS REBOUND
Hungary's forint, the region's most volatile unit, led early losses and the later rebound, and was firmer by 0.1 percent in late trade.
"Nothing changed, actually, apart from the euro/dollar cross and in the lack of local stories, it moves the currencies," one Budapest-based foreign currency dealer said.
Earlier, regional currencies and government bonds eased due to the dollar's rise to a 2-year high against the euro, and worries caused in emerging markets by unrest in Hong Kong and a leadership change at big global fund manager Pimco.
The forint's rebound also helped Hungarian government bonds erase their early losses and Polish bonds also rebounded, but yields changed little.
The yield on Hungary's 10-year benchmark bonds returned to Friday's levels after an early rise of about 10 basis points.
Stocks mostly rose in the region, led by Budapest where the BUX index gained 1.2 percent, while Poland's WIG20 index dipped into the red after an initial one percent rise.
In Budapest, the stocks of Magyar Telekom rose 1.7 percent after the company won new broadband frequencies at a tender for 58.65 billion forints ($238 million).
The price was slightly above analysts' consensus forecast of 53 billion forints, but obtaining the 1,800 MHZ and 800 MHz bands was vital for the company, Budapest-based brokerage Equilor said in a note.
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