BUDAPEST: Central European currencies firmed on Tuesday as the euro rebounded against the dollar and Poland released higher-than-expected inflation figures.
The first March 2019, inflation data from the region showed a 2.2 percent annual rise, well above analysts' 1.8 percent forecast, partly due to an upside surprise in core components of the index.
"It is likely that rising inflation on both core and non-core components, together with ongoing fiscal stimulus, will feed into a narrative of higher rates," Morgan Stanley analyst Pasquale Diana said in a note.
But Diana said he would continue to downplay this narrative "as we just do not see a majority on the NBP (National Bank of Poland) for a rate hike to happen on our forecast horizon."
The zloty firmed to 4.2888 versus the euro after the figures, from 4.295.
It retreated to 4.2905, still a shade firmer from Monday, after central bank rate setters said they saw no need to change interest rates in reaction to the data.
While emerging market currencies mostly dipped after soft Chinese data hit risk appetite, currencies in the European Union's eastern wing got support from a selling of the dollar .
With their reference currency, the euro, drifting off last week's 2-year lows versus the greenback, the Czech crown touched a 12-day high versus the euro. Trading at 25.66 at 0842 GMT, it was firmer by 0.1 percent.
The forint gained 0.2 percent, to trade at 322.85, still near the 3-and-1/2-month lows hit versus its Czech peer and the euro on Monday.
It is helped by the euro's rebound, but it may come under pressure again if the National Bank of Hungary (NBH) keeps interest rates on hold at its meeting on Tuesday, without indicating further liquidity tightening, as expected, ING analysts Peter Virovacz said.
Inflation figures often move in tandem in Central Europe, where a surge in wages fuels domestic inflation pressure, and after the surprise Polish jump, Hungary's own figures due on May 9 could also show a rise and cause worries, Virovacz said.
Slovenia's own March data showed a smaller rise in annual inflation, to 1.8 percent from 16 percent in February.
In Hungary, both headline and core inflation could rise above 4 percent, the top of the NBH's 2-4 percent target range in the next months, before some retreat, he added.
"The market still has some confidence that the bank will do something (to fight the rise), but this can disappear fast and investors may start to beat the bank to make it act," he added.
The Czech National Bank (CNB) is expected to raise its main interest rate to 2 percent on Thursday, ending a recent pause in a two-year tightening cycle.
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