BUDAPEST/PRAGUE: The crown steadied on Wednesday near one-month lows reached in overnight trade against the euro due to positioning ahead of a likely interest rate hike at the Czech central bank's (CNB) meeting on Thursday.
A rise in the Czech benchmark rate, which is currently the lowest in Central Europe at 0.05 percent, would be the first tightening in the region since 2013 and the first in Prague for almost a decade.
Other central banks in the region are still in easing mode.
But there are many in the market who believe a Czech rate hike still cannot be taken for granted, as they say loose European Central Bank (ECB) policy will prevent the bank tightening this month.
On the other hand, solid economic growth of around 3 percent expected for this year and next and inflation above target, coupled with wages and house prices soaring, are good arguments for a rate increase.
"Front end FRAs did not move much, we still seem to be having a hike priced in only sometimes in November, the curve should catch up if CNB delivers the hike tomorrow," Komercni Banka said in a note on Wednesday.
"EURCZK gets weaker again, 26.150 (versus the euro) unlikely to mean much for CNB decision making tomorrow, but a weaker currency is certainly an inflationary factor should there be a larger correction."
At 0753 GMT, the crown was trading at around 26.13 versus the euro, up a shade from Tuesday but near one-month lows. The forint, which firmed to multi-year highs against the dollar and the euro on Tuesday, retreated by 0.1 percent.
Prague will also hold its last debt auction before the central bank decision, with results due at 1015 GMT.
In the first primary offering since mid-June, three different bonds will be sold.
"We expect solid demand but not a strong oversubscription, as especially domestic investors consider the local debt as being massively overpriced," Komercni Banka said.
Elsewhere, currencies were rangebound while stock markets traded in positive territory, with Budapest leading gains in the region in early trade, boosted by a half percent rise in OTP Bank and a 0.8 percent rise in pharmaceuticals firm Richter.
Magyar Telekom, which will report second-quarter results at 1600 GMT, was flat.
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