BUDAPEST/PRAGUE: Romania's leu fell the most in 10 months on Friday and the Hungarian forint dropped a third straight day after weak data and as global investors backed off higher-yielding assets.
Volatility in central Europe has risen in May, with currencies showing wide swings since the start of the month and bond yields rising off of record lows.
Uncertainty over when the US Federal Reserve might slow its stimulus programme has rattled markets. The "wall of money" from global central banks has fuelled investor appetite for emerging market assets and any cutback in this funding could hit assets in central Europe.
"Investors are reassessing the situation in emerging markets and now they feel that the rally is losing steam," a Budapest-based fixed income dealer said.
The forint dropped to its lowest since May 7 and is down 3 percent since hitting a 2013 high on Tuesday. By 1337 GMT, it was bid at 295.09 to the euro, 0.3 percent lower on the day and just above a session low of 297.
Hungarian data showed on Friday that investments dropped 8.7 percent in the first quarter in annual terms, highlighting the fragile state of the economic recovery that started this year.
Data this month showed the economy exited recession in the first quarter, while the European Commission on Wednesday decided to take Hungary off its list of budget miscreants -- two factors that had driven currency gains this month.
"The South African rand is the story now, it is weakening sharply and dragging us lower as well," a dealer said. "Risk aversion has increased slightly, so it seems the story is changing a bit."
South Africa's rand slid more than 2 percent against the dollar in early Friday trade to hit another four-year low on concerns about mining labour tensions and a weak economy.
"Given what is going on in (the rand), emerging FX is pretty much playing to script, i.e. it's a case of 'what goes in, goes out' in terms of flows," said Timothy Ash at Standard Bank in a note.
The usually stable leu was a victim of the retreat from Romanian bonds, falling 0.8 percent to 4.388 to the euro, its biggest intraday loss since July 2012.
"Currency depreciation and outflows from local bonds reinforce each other," said Dan Bucsa, UniCredit Bank economist in London.
Prague stocks lost as much as 2 percent on Friday and the index was on target for its biggest one-day loss since mid-April. The Czech crown inched up 0.2 percent, while Poland's zloty was up 0.1 percent.
The crown -- after falling to three-year lows this month -- has rebounded to a three-week high, partly because of the closing of short Czech positions versus central European peers.
Most dealers and analysts, though, see a return to crown weakening given the weak Czech economy and a lingering threat of central bank intervention to weaken the currency.
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