Currencies and stocks ease as inflation worries dominate

BUDAPEST: Most central European currencies and stocks eased on Wednesday as equities in the US and Europe fell on inflation worries, with markets eyeing US Federal Reserve minutes later in the day.

Budapest's index was down 0.92% while Warsaw lost 0.89% and Prague slid 0.33%. Bucharest bucked the trend and gained 0.32%.

The forint slid 0.24% to 351.50 in what a trader called a correction that was expected after the currency strengthened to a nine-month high on Monday and then turned back from the psychological level of 350 on Tuesday.

The currency jumped on Monday when the central bank flagged a possible rate hike in June. Deputy Governor Barnabas Virag said that from June the central bank will adjust short-term rates proactively to tackle rising inflation risks.

The bank will hold its next rate meeting next Tuesday.

Hungarian government bond yields were 2-3 basis points higher on Wednesday after a jump on Monday following the central bank's announcement.

On Wednesday, the 10-year Hungarian government bond yield was 3.2%, while the yield on the 15-year bond was 3.6%.

"Yesterday was calm, the market was trying to process the 25-30 point jump in yields on Monday, but this morning yields are 2-3 higher, tracking a rise in core yields," an FI trader in Budapest said.

The benchmark German Bund yield rose to a two-year high as investors increasingly priced in the possibility of the ECB slowing its bond-buying.

Polish 10-year government bond yields were 4 basis points higher on Wednesday, at 1.97%. It hit 2% on Monday for the first time since March 2020.

The Polish zloty slid 0.17% to 4.5300 versus the common currency after firming in the previous session on increased rate hike prospects in the CEE region.

"Yesterday, the zloty took advantage of the dollar depreciation and continued strengthening of the region's currencies. ...The prospect of low real rates still does not allow for a more significant strengthening," Alior Bank wrote.

Elsewhere, the Czech crown eased 0.25% to trade at 25.467 per euro.