BUDAPEST/WARSAW: Central Europe's most liquid currencies firmed on Monday and regional stocks mostly rose, tracking Western European bourses.
The region's assets have been buoyed by comments about the dovish tightening of interest rates by the US Federal Reserve, which means the region's assets will not lose their appeal relative to US debt.
They can get further support from expected further European Central Bank policy easing. Indeed, Poland's currency has regained all the ground lost after the ECB early this month loosened policy less than expected.
The zloty hit a 4-week high against the euro, trading at 4.254 at 0956 GMT, firmer by 0.2 percent from Friday when it already gained almost 1 percent.
The forint hit a 2-week high, before retreating to 314.10, weaker by 0.3 percent from Friday's close.
Polish government bonds rebounded soon after an early weakening as debt prices in the euro zone peripheries also dropped due to political uncertainty in Spain after Sunday's elections resulted in a fragmented parliament.
With risk appetite returning in global markets, dealers and analysts say investors are eyeing Central Europe's economic growth prospects and are willing to ignore the uncertainty over policies under Poland's government that took office last month.
Even with trading interest dropping ahead of the end of the year, speculation over the idenitities of new central bank rate setters who will be appointed early next year and their comments will be closely watched, Raiffeisen said in a note.
But expectations for further 50 basis point cut in the bank's 1.5 percent benchmark rate are dissipating, Bank Millennium analyst Mateusz Sutowicz said.
"The zloty is coming back to its fundamentals. The hard data shows that Poland's economy is still doing quite well," he added.
The forint traded at a 5-week low against the zloty, off an almost two-year high touched early this month, but it may catch up with the Polish unit's gains in the rest of the year.
Hungary's government and the central bank probably want the forint to trade near 310 versus the euro in the next days, the rate with which the year-end level of state debt had been calculated in the 2015 government budget, dealers said.
"But verbal intervention by (Economy Minister Mihaly) Varga can be enough to lead to speculation for a firmer forint even if the central bank does not intervene in the market," one Budapest-based trader said.
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