BUDAPEST: Central European currencies reversed an early weakening on Thursday as investors sold the dollar after a slowdown in US inflation - even though the data did little to dampen expectations of a Federal Reserve rate increase this month.
The European Central Bank, meanwhile, stayed on track to end bond purchases this year and raise interest rates next autumn, prompting a strengthening of the euro.
Dollar selling bouts usually support currencies in the European Union's emerging economies, after they got hit earlier this year by a rally of the dollar amid expectations for more Fed rate hikes.
The region's markets have mostly priced in an expected monetary tightening in the euro zone.
A jump in the lira after a big interest rate hike by the Turkish central bank helped sentiment.
"But the euro/dollar was the key impact. The lira has already given up part of its initial gains," one Budapest-based dealer said.
The crown, the forint and the zloty , after some easing early in the session, firmed against the euro.
The forint set a 2-week high at 323.8, and traded at 323.89 at 1356 GMT, up 0.4 percent.
According to a Reuters poll of analysts, Hungary's central bank is seen keeping rates on hold at record lows next Tuesday, but could provide clues on how it might withdraw liquidity from markets.
The zloty firmed 0.2 percent.
The crown reached a new 4-month high. It traded at 25.515, up 0.3 percent.
It has also been supported by expectations that the Czech central bank could deliver its third rate hike in a row on Sept. 26, flagged by the bank's Governor Jiri Rusnok in an interview to Reuters on Wednesday.
Czech and Polish government bonds recovered from minor early losses, but Hungarian bonds traded at slightly higher yield levels, with the 10-year paper sold at 3.58 percent.
They were unable to benefit from a jump of the forint after an auction where average yields rose 10-18 basis points relative to an auction held two weeks ago.
"Not bad, though, given that the (debt agency) AKK increased its offer by 40 percent," one Budapest-based trader said.
Romania also sold more bonds than planned at an auction of 2-year papers, at an average yield of 3.9 percent, up from 3.8 percent in a sale late last month.
The leu, which is often an outlier, managed more closely by the central bank than some regional peers, touched a four-week low against the euro.
Romania's August inflation figures released on Tuesday showed a rebound in the annual rate to above 5 percent after a retreat in July.
But the bank is unlikely to shift towards more hawkish policy as inflation is seen retreating in the next months.
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