BUDAPEST/BELGRADE: The zloty, battered by worries that Poland may face credit rating downgrades, led a fall of Central European currencies as the Federal Reserve's upcoming meeting weighed on risk appetite.
The dinar, resisting the pressure, steadied after Serbia's Prime Minister Aleksandar Vucic got strong voter backing in Sunday's elections.
The zloty hit a two-month low at 4.414, shedding 3.5 percent since last Thursday and one percent from Friday's close, breaking a key support level at 4.4.
"It really depends whether the exporters will wake up (and buy the zloty) at the current levels or not," one Warsaw-based dealer said.
The forint weakened by only 0.4 percent and the leu by 0.1 percent by 1316 GMT.
The Fed, meeting on Tuesday and Wednesday, is expected to keep its rates on hold but the risk is a hawkish turn in its rhetoric.
Prague's main index led a decline of equities, easing 1.2 percent, knocked down by the biggest Czech bank Komercni and Vienna-based Erste bank.
Government bond yield curves steepened in Central Europe, indicating that attention was turning towards the Fed.
Despite the risk of a rise in US interest rates, Hungary's central bank is expected to cut its rates further and the Polish central bank may also turn dovish, analysts said.
Romania, where inflation risks are stronger, cut its sale of 5-year bonds due to weak demand. The average yield rose to 2.7 percent from 2.66 at an auction on March 30.
"There are risks of fiscal slippages ahead of elections (late this year), related to a debt discharge bill and the (Romanian) central bank policy outlook," one trader said.
Polish assets also face domestic pressures, with investors eyeing a plan to convert Swiss franc mortgages at the cost of banks, tension with the EU over changes at the constitutional court and the risk of a rating downgrade by Moody's in May.
The dinar firmed 0.2 percent against the euro to 122.69, clinging to the past 6 weeks' typical levels.
Dealers said the currency was backed by the central bank's euro sales in the market, totalling about 800 million euros this year, rather than the election results.
Serbia, an applicant to join the EU, has the highest central bank main interest rate in the region at 4.25 percent, but interest in local markets is muted due to concern that Fed rate hikes would curb the appeal of the dinar, dealers said.
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