BUDAPEST/PRAGUE: The Czech crown edged higher on Wednesday as central bank (CNB) policymakers met and were expected to raise rates for the third meeting in a row.
The currency was 0.1 percent higher at 25.585 against the euro at 0837 GMT, not far off 5-month highs.
In other markets, the zloty gained as much as the crown and the forint even more - 0.2 percent - on a cautious rise in risk appetite in global markrts.
The dollar, whose rally earlier this year put Central European currencies under pressure, moved sideways ahead of the Federal Reserve's meeting which will conclude after European markets close.
The CNB is expected to increase its main rate by 25 basis points to 1.5 percent, level with Poland's benchmark rate and 60 basis points above the Hungarian central bank's main rate.
The hike could give little support to the crown if the CNB does not make it clear that another increase is likely before the year ends, some analysts said.
"The board (is) likely to point out (a) weaker (than expected) currency as being a main reason for another rate raise today," Komercni Banka rates trader Dalimil Vyskovsky said in a note.
The trader said markets have mostly priced in another rate hike in November.
A rise to 1.75 percent could already strengthen the crown making it worthwhile to buy buying long-term Czech government bonds in the short term, Raiffeisen analyst Stephan Imre said in a note.
The Czech yield curve flattened a bit, with 2-year bonds bid higher by 3 basis points at 1.5 percent, while the 10-year yield dropped 1 basis point to 2.21 percent.
Poland's corresponding yield dropped more, by 3 basis points to 3.23 percent, tracking a retreat in the corresponding US and German yields, while the zloty was testing its strongest levels against the euro this month.
Hungary's 10-year yield did not join the drop in developed markets, trading flat at 3.6 percent as investors were unwilling to make the bonds cheaper ahead of a bi-weekly government bond tender on Thursday, one Budapest-based fixed income trader said.
The negative risk is that the Fed signals faster rate hikes, while it is counterbalanced by late Tuesday's good news from a rare Hungarian foreign currency bond sale, the trader added.
The government sold one billion euros worth of seven-year euro-denominated bonds at a 75 basis point spread over midswaps, 25 basis points below the initial target, with four times oversubscription.
Elsewhere, Romania's leu, which outperformed its regional peers in the past half year, eased a tad versus the euro, but was off Tuesday's six-week lows.
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