BUDAPEST/BELGRADE: The dollar's retreat on global markets helped Central European currencies firm on Thursday, while government bond yields tracked a rise of those in the euro zone.
Bonds were hit by comments from European Central Bank Chief Economist Peter Praet, who said on Wednesday that inflation was on its way back to target and that the ECB might reveal more about the end of its asset buying programme next week.
Less stimulus from the ECB could be negative for assets in Central European markets which are tightly integrated with the euro zone. But regional currencies still firmed.
"This is because their strengthening is about the dollar rather than the euro, as the dollar has retreated in all crosses quite significantly in the past day," one Budapest-based fixed income trader said.
"That is not a surprise after its recent surge ... investors are adjusting positions, waiting for new information from the Fed's (Federal Reserve) and the ECB's meetings next week."
Reuters surveys showed on Thursday that the dollar's dominance could soon fade, while Central Europe's most liquid units could strengthen over the next year.
The region's main currencies hit multi-month lows against the euro last month as investors rearranged positions amid a global dollar rally.
They have recouped only part of the ground since then, and further gains are possible if the dollar does not resume its rally, market participants said.
The forint led Thursday's gains, firming 0.2 percent against the euro, while the Hungarian government's bi-weekly debt auction attracted healthy demand.
It sold bonds worth 82 billion forints, a relative relief compared with its previous auctions which added more than 100 billion forints each to the debt supply.
The average yields of the bonds sold were higher by a few basis points from Wednesday's secondary market levels, and remained steady after the auction, with slight buying pressure, one Budapest-based trader said.
Views on risks from next week's ECB guidance were mixed. Hawkish comments could further dent regional government bonds.
But ING economists in Warsaw said the ECB may even extend its asset buying programme. "We also think that the ECB will communicate the possibility of increasing the scale of asset buys if the risk of economic slowdown appears," they said in a note.
Elsewhere, Serbia's central bank kept its main interest rate on hold at 3 percent, as expected, not cutting it further even though inflation runs well below its 3 percent target.
The dinar eased slightly.
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