Zloty extends gains, other FX bucked up

PRAGUE: The Polish zloty gained for a second straight day on Wednesday, buoyed like other central European currencies by some tentative signs Europe's economic slowdown could be easing.

The zloty hit a one-week high, rising 0.2 percent to bid at 4.158 to the euro a day after improved output data raised expectations the central bank may pause in cutting interest rates.

Currencies have been under pressure since the middle of 2012 as central banks began to loosen monetary policy to prop up economies that were slowing or had fallen into recession.

"Developments concerning central banks are still expected to exert significant influence on central European currencies," KBC analysts said in a note.

"While the market is still pricing two rate cuts till the end of this year in Poland, better economic growth prospects can change these expectations and thus help the zloty."

Currencies also found support from a monthly poll on Tuesday that showed German investor and analyst sentiment at its highest level since April 2010, giving a boost to assets in export-oriented central Europe, which counts Germany and the euro zone as a key trading partner.

But dealers said trading was more cautious on Wednesday.

"Things are quiet, waiting for the next impulse," a Prague dealer said.

Hungary's forint rose 0.2 percent to 290.6 to the euro, leading gains in early trade, and the Romanian leu was down a touch at 4.376.

The Czech crown was flat at 25.349 to the euro.

It has retreated since last week from a one-month high of 25.165, hit on Feb. 6 after the central bank said there was less urgency to intervene in currency markets to ease monetary policy, but is still well off a seven-month low of 25.765 seen just before that gain.

Data this month has shown the economy contracted a fourth straight quarter to end-2012, boosting chances the central bank might again consider interventions to loosen policy now that interest rates are at a "technical zero".

On Tuesday, Czech central bank Governor Miroslav Singer said the recession had probably hit its nadir.