BUDAPEST: Central European currencies and government bonds fell on Thursday after the European Central Bank left the door open to removing its bond-buying pledge in the minutes of its last meeting.
A tapering of monetary stimulus in the euro zone could also cut demand for assets in the European Union's eastern markets, and the prospect of higher yields in the west would make the region's government debt relatively less attractive.
"The key negative impact today was the rise in the 10-year Bund yield to above 0.5 percent," one Budapest-based currency dealer said. The 10-year German yield was bid at 0.566 percent at 1218 GMT, up 9.1 basis points.
Poland's corresponding yield rose 8 basis points to 3.3945 percent.
Hungary's 10-year yield rose 9 basis points to 3.22 percent even though demand at the bond auctions held in the morning was "surprisingly good", one fixed income trader said.
Romania's 10-year bond auction also drew healthy demand before the ECB published its minutes.
"Regional currencies have been pushed down by the same impact," the trader added. "The ECB was more hawkish than expected and that lifts the euro in its crosses."
In early trade, the region's currencies mostly firmed, led by the zloty as some investors took increasing divisions in the Polish central bank over inflation and rates as a sign that it may start to discuss rate hikes late this year.
But the currencies retreated later, led by the Czech crown and the Hungarian forint which shed a quarter of a percent against the euro by 1227 GMT, while Poland's zloty shed 0.15 percent.
Czech domestic markets were closed due to a holiday.
The economic data released by Hungary on Thursday were mixed, with a surprise surge in industrial output in May and the budget deficit in June.
"I do not see any Hungary-specific factor...Emerging market currencies are falling anyway, like the lira and the rand ," another Hungarian dealer said.
Central European units are shielded by relatively healthy economic fundamentals.
A Reuters poll of analysts showed on Thursday that growth and a probable kick-off in Czech monetary tightening could lift three of the region's five main currencies - the leu, the crown and the zloty - in the next 12 months.
The region's main equities indices were treading water, except for a 1.1 percent rise in Budapest driven by a rise in shares of OTP Bank, which plans acquisitions in the region, to a 10-year high.
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