BUDAPEST: The forint jumped against the euro on Tuesday, in tandem with the zloty, as a weaker dollar encouraged flows into emerging markets and investors shrugged off lower-than-expected Hungarian inflation data.
The leu, meanwhile, retreated from a two-month high, easing 0.3 percent after Romanian Prime Minister Mihai Tudose said he was considering a cabinet reshuffle.
Central European currencies, mainly the more liquid zloty and forint, have tracked the dollar's fluctuations in recent weeks, with dollar weakness triggering flows into the region's fast-growing and relatively stable economies, as well as other emerging markets.
"Probably a similar thing is happening to the Turkish lira which has firmed even more than the forint (on Tuesday)," one Budapest-based currency dealer said.
"This morning's inflation figures should have a forint-weakening impact, but they are ignored," the dealer said.
Hungary's annual inflation rate ticked down to 2.5 percent in September from 2.6 percent in August, data showed on Tuesday.
Poland's figures released recently, however, showed a pick-up to 2.2 percent.
Concerns over negative real interest rates triggered expectations in markets that the Polish central bank (NBP) could start to lift rates earlier than the expected last quarter of 2018.
Forwards rate agreements (FRAs) on the 3-month WIBOR interbank interest rate tested their highest levels since February, pricing in a 25 basis point NBP rate hike over the next 12 months.
"Poland has negative CPI adjusted rates now which exposes the zloty to change in the global interest rate environment, but I don't see the zloty currency weakening past 3.30-3.40 to the euro," said Marcin Mazurek, senior economist at Warsaw-based mBank.
The zloty firmed 0.4 percent against the euro to 4.289 by 1422, lifted by the dollar's weakness. The forint , rose half a percent, to 310.33.
The forint gained even though the unexpected retreat in inflation underpinned the Hungarian central bank's (NBH) dovish policies, analysts said.
The forint has become oversold as the NBH has cut its overnight deposit rate in recent months and is pumping liquidity into markets through its foreign exchange swap tenders, dealers and analysts said.
Central European economies are seeing robust growth, led by Romania, which revised its annual growth for the second quarter to 6.1 percent from 5.9 percent on Tuesday.
The upward revision, and a continuing liquidity squeeze in Romanian interbank markets, failed to buoy the leu as politics dominated.
Prime Minister Tudose said corruption allegations surrounding three ministers may lead to a cabinet reshuffle, which may create tension with Liviu Dragnea, the leader of the ruling Social Democrat party.
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