BUDAPEST: Central European currencies lost steam in thin trade on Monday ahead of the publication of key economic data in the region and the United States.
They had firmed in the past few weeks after losses in the second quarter of 2018, when the dollar rallied, causing a sell-off in emerging markets, and rose to multi-week highs against the euro by late last week.
On Monday, however, the Czech crown, the forint and the zloty all eased by 0.1 percent by 0821 GMT, and the leu was also a shade weaker.
"The currencies are stabilising, while there is hardly any trade," a Budapest-based currency dealer said, adding that global sentiment would remain the key driver.
While updates on inflation and payrolls in the United States and a meeting of the Federal Reserve could influence appetite for the dollar this week, Poland is due to release Central Europe's first July inflation figures on Tuesday.
Worry over a pick-up in inflation in the region in the past few months played a role in the weakening of currencies, mainly in Hungary, where the central bank keeps markets awash in money.
The forint set a record low against the euro early this month and Hungarian government bonds well underperformed regional peers like Poland. Short positions, however, have been closed in forint markets in the past weeks.
On Monday, Hungarian bonds were steady even though yields mostly ticked up in the euro zone.
The 10-year benchmark paper's yield was quoted around 3.24 percent, while the corresponding Polish yield rose 1 basis point to 3.1635 percent.
Poland's spread over its Hungarian peer narrowed to 8 basis points from around 50 basis points early this month.
After pressure eased on forint assets, Hungary's central bank last week reaffirmed its loose policy, and money market interest rates continued to drop slowly, one Budapest-based fixed income trader said.
Czech central bankers, on the contrary, indicated further interest rate hikes in their public comments last week, and many investors expect the bank now to deliver its fifth rate hike since August 2017 at its meeting on Thursday.
The crown, trading at 25.64 against the euro, has hovered near eight-week highs despite Monday's weakening.
"As the CNB (Czech central bank) would have to find very good reasons why not to hike after this (comments), the crown is likely to stay strong," Erste analysts said in a note.
A rise in Romania's short-term market interest rates due to tight liquidity might mean a likely central bank rate rise coming later than August there, the analysts added.
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