BUCHAREST: The Polish zloty was the biggest faller among emerging central European currencies on Tuesday, retreating from a 10-week high against the euro hit the previous day, on expectations of a further slump in consumer prices and uncertainty over US interest rates.
Polish consumer prices, due at 1300 GMT on Tuesday, are expected to have fallen 0.7 percent on the year in February after January's 0.7 percent drop.
"After the additional ECB monetary policy easing supported the zloty recently, our expectation of continued (Polish) deflation possibly increasing pressure on the ... central bank to react and ongoing political jitters should lead EUR/PLN weaker towards above 4.30 again," Raiffeisen said in a note.
The zloty, emerging Europe's most liquid currency, briefly dropped as low as 4.2900 to the euro, about 0.3 percent down on Monday before recouping some ground.
Political uncertainty may also be weighing on the currency. Tens of thousands rallied in Warsaw at the weekend demanding the government respect the constitution, in an escalation of a confrontation that pits the opposition, the country's top court and the EU against ruling conservatives.
Poland's central bank has kept interest rates at an all-time low, with its governor signalling the possibility of a rate cut later this year after the European Central Bank decided to ease policy further.
A Nordea research note said it now expected two rate cuts in the second half of the year when the new governor and the new monetary policy council (MPC) are in place.
"Inflation remains weak and the incoming MPC is likely to have a dovish tilt."Our views that political risks will remain elevated and that details of the Swiss franc conversion will be negative remain unchanged."
PKO BP analyst Jaroslaw Kosaty said the zloty might firm to around 4,26 soon, but after the Fed meeting it should stabilise at levels above 4,30 because Fed will probably not completely withdraw from rate hike plans.
Other regional currencies were little changed with the Romanian leu 0.1 percent down at 4.4690 to the euro, almost immune to IMF warnings on its budgetary stance.
The IMF said Romania would miss the government's own budget deficit target and overshoot the European Union's ceiling next year unless planned tax cuts were postponed, the mission chief to Romania said on Monday.
The Czech crown and the Hungarian forint were stable. Markets in Hungary were closed on Tuesday for the National Day holiday.
Elsewhere, Bulgaria signed a 2 billion euro ($1.87 billion) dual tranche bond on Monday to finance its fiscal deficit and roll over existing debt.
The Balkan country, which needs to maintain tight fiscal policy to protect its currency peg, ended 2015 with a fiscal deficit of 2.9 percent of gross domestic product and plans to reduce it to 2 percent of GDP this year.
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