BUDAPEST/WARSAW: The forint eased on Wednesday, bucking a mostly firming regional trend on a renewed bout of selling of Hungarian government bonds after the central bank tempered expectations of further rate cuts.
The bank signalled on Thursday that market hopes for further interest rate cuts were excessive and its easing cycle was near its end. That triggered profit-taking in Hungarian bonds, which also weighs on the forint.
The forint was down 0.1 percent at 0754 GMT as the selling resumed.
A Budapest-based trader said bond yields had been ticking upwards, with the 2019/C bond now trading around 1.8 percent, up from Tuesday's fixing of 1.68 percent. The five-year 2021/B bond was trading at 2.42 percent, up from 2.30 percent on Tuesday.
"The question is whether this is only a negative correction until the next rate meeting," the trader said.
Another fixed income trader said investors were also selling as part of a general emerging market sell-off.
In Poland, the zloty was marginally firmer, trading 0.1 percent higher and supported by expectations that Poland's economic growth will outperform the euro zone.
The currency has been under pressure this year due to fears over the impact on banks of a bill to convert Swiss franc-denominated mortgages.
Investors are also concerned that Polish government spending plans and other measures could lead to a downgrade from ratings agency Moody's later this month, following a move by Standard and Poor's in January.
"A chance for a rebound (in zloty) could be offered by a rise in global risk appetite (...) or a confirmation of stable rates by the MPC, in spite of recent weaker macro data," Bank Millennium said in a note.
The Polish central bank will decide on interest rates on Friday. In April the bank kept its benchmark rate unchanged at a record low of 1.5 percent. Some market players are pricing in a cut this year.
Polish forward rate agreements price in a 60-percent chance of a cut in the next 6-9 months.
"In our view, the market is pricing the NBP too dovishly," Danske Bank said in a note.
"Given the strong growth in the economy and tight labour market, we think inflation pressures should start to build. Hence, we think NBP will refrain from cutting rates over the next year."
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