BUDAPEST: The forint touched a four-week high against the euro on Friday on speculation Fitch might upgrade Hungary's foreign currency debt later in the day, giving the country its first investment grade rating since 2011.
Other Central European assets mostly trod water on a lack of major domestic triggers.
Expectations the Federal Reserve will start to lift US interest rates in December have not dented asset prices in the European Union's eastern states. Many investors believe that any possible capital outflows could be offset by positive impacts from expected further monetary stimulus in the euro zone.
The forint traded at 309.25 at 1030 GMT, up 0.4 percent from Thursday, while other currencies in the region were flat.
The currency retreated slightly, to 309.55, after Economy Minister Mihaly Varga said that he did not expect an upgrade from Fitch, but then erased those losses.
"The day is about Fitch and we think this (the upgrade hope) was also the cause that stocks were bought so heavily yesterday," said a fixed income trader.
Expectations of an upgrade have strengthened the forint this week, though dealers said it was not certain that an upgrade could boost it beyond 308.50, a resistance level over the past
six months.
"Maybe," said one dealer. "Trade will be illiquid as the domestic market will be closed so the forint may jump... but even then it is a question how it will open on Monday.
If Fitch raises the rating, government bond yields can decline on Monday, otherwise disappointment could lift yields, the fixed income trader said.
Many investors also expect Moody's and Standard & Poor's to upgrade Hungary's rating from "junk" next year.
A slow flattening of the Hungarian debt yield curve extended into Friday, with the 10-year yield dropping 5 basis points to 3.26 percent from Thursday's fixing.
Traders said the flattening was fuelled by recent comments from the Hungarian central bank that interest rates, at record lows, were unlikely to change for years, but the bank wanted long-term market yields to decline.
The bank said on Thursday that it may unveil new unconventional monetary easing measures before the end of this year.
Among equities, OTP Bank traded up 0.4 percent at 5,935 forints, having earlier in the week pushed through resistance at 6,000 on the Fitch upgrade speculation. That also drove the Budapest bourse's main index to its highest levels since mid-2011.
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