Forex, stocks fall on risk aversion, zloty near 3-month high

BUDAPEST/WARSAW: Central European currencies joined a retreat of regional equities on Tuesday as investors sold risky assets across global markets on concerns the US Federal Reserve may lift rates sooner and faster than expected.

Friday's solid US payroll data and comments from monetary policy makers added fuel to speculation the Fed may lift rates earlier this year than it had initially indicated, making risky assets less attractive.

The impact reached Central Erope's liquid currencies on Tuesday despite being somewhat shielded by the region's solid economic fundamentals.

The forint shed a quarter of a percent against the euro by 0855 GMT, retreating from 2-week highs, but at 312.90, it was still in the middle of this year's trading ranges.

The zloty, easing 0.1 percent to 4.245, remains near 3-month highs, even though Moody's warned on Monday that Poland's constitutional crisis was negative for its credit rating.

Hungary's retail sales figures, showing a 6.4 percent annual surge in February, was a reminder that low inflation across the region helps fuel consumption and economic growth.

While Hungary's central bank has flagged further interest rate cuts and monetary stimulus, Poland's central bank is expected to keep interest rates on hold at its meeting on Wednesday.

Zloty forward rate agreements (FRA) still price in 100 percent chance for a 25 basis point cut in the Polish central bank's main rate within the next 9-12 months and 80 percent chance for a reduction even earlier.

But many analysts believe that worries over possible capital outflows from emerging markets will prevent a rate cut.

"(The bank on Wednesday) even may accompany its decision with some hawkish comments," PKO BP analysts said in a note dated April 4. They said FRAs could continue to price out rate cuts.

Policy makers "may look to row back from their current relatively hawkish stance if PLN (zloty) outperformance continues", HSBC analysts said in a note.

But they added that the currency was likely to retreat gradually from May due to current account outflows in the form of dividend payments and a planned bill on the conversion of Swiss franc mortgages.

Central European stocks also eased, maintaining the past months' usual pattern of outperforming German shares.

Warsaw's bluechip index led the fall, shedding 1.5 percent. Budapest's main index continued to retreat from 8-year highs set last week, dropping 0.9 percent.