BUDAPEST/PRAGUE: Stocks rose, currencies steadied and traders expected healthy demand at government bond auctions in Central Europe on Thursday as investor expectations for US rate increases dwindled.
The crown was flat at 27.022 against the euro at 0859 GMT and short-term Czech government debt yields dropped on the short end of the curve before a Czech Central Bank meeting expected to leave its rates unchanged.
Analysts expect the bank to maintain its cap on the value of the crown - near 27 to the euro - into 2017, but the CNB will probably leave open how long it will maintain its intervention policy.
"CNB meeting with a new quarterly forecast presented, no action today expected but we might get some new hints about the FX regime phasing out, recent remarks from CNB board members having inclined towards later exit more than anything else," Dalimil Vyskovsky, a rates trader at Komercni Banka, said in a client note.
The Polish central bank did not suggest further monetary easing after its meeting on Wednesday, but its comments on prolonged deflation should support demand at a government bond auction on Thursday, Raiffeisen analyst Stephan Imre said
"We see value in longer-duration Polish government bonds and would recommend to consider bidding at today's auction," he said in a note.
A Budapest-based trader also projected healthy demand for a Hungarian bond auction.
Dovish comments from the Federal Reserve on Wednesday and the European Central Bank in the recent weeks make Hungarian yields more attractive, and the three-year interest rate swap tenders offered by the Hungarian central bank last week should fuel local banks' demand for government bonds, the dealer said.
Poland's 10-year government bond yield was steady at 3.155 percent. Hungary's corresponding yield dropped 7 basis points from Wednesday's fixing to 3.29 percent.
The zloty was firmer at 4.412 against the euro. The forint and the leu were flat.
The zloty remains fragile, but it has largely recovered from a plunge to four-year lows after Standard and Poor's downgraded Poland on Jan. 15. A Reuters poll of analysts forecast it would strengthen next week to 4.25 by January .
"The zloty looks a little undervalued, all the downgrade-related fuss is gone, macro looks good, the global rates outlook looks also supportive," a Warsaw-based dealer said, but a plan to convert Swiss franc mortgages remains a risk to the zloty.
Warsaw's blue-chip index led a rise of Central European equities, gaining 1.5 percent.
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