BUDAPEST: The zloty and Polish stocks briefly touched 4-week lows on Friday after Moody's issued a warning over Warsaw's tension with the European Commission, preparing investors for a possible rating downgrade.
Central European assets were mixed ahead of a speech by Federal Reserve Chair Janet Yellen later on Friday, in which she may flag upcoming interest rate hikes that would make the region's high-yielding assets relatively less attractive.
In regional stock markets, Budapest's main index fell by 0.6 percent by 1325 GMT. Warsaw's bluechip index was steady rebounding from a 4-week low set in early trade.
Currencies were also mixed.
The forint touched its firmest levels since early March against the euro. Trading at 308.61 it was firmer by 0.2 percent from Thursday, while the leu shed 0.1 percent.
The zloty firmed 0.1 percent to 4.328, but stayed near the 4-week lows it touched in early trade at 4.3354.
Moody's warned late on Thursday that the changes implemented by the Polish government in the constitutional tribunal last year threatened to raise tension with the European Union.
Central European states's resistance to European Commission and German proposals for distributing migrants in EU members has been another key source of tension.
Hungarian Prime Minister Viktor Orban, a staunch critic of the EU's migration policies, said on Friday that his government planned to build a second fence on the southern border to keep out migrants.
He spoke before a meeting of German Chancellor Angela Merkel with the prime ministers of the Visegrad Group - the Czech Republic, Hungary, Poland and Slovakia - in Warsaw.
"Markets are not influenced (by Orban's comments) as the tension (with Brussels and Berlin) has been continuous over that issue and this looks only a new chapter," one Budapest-based fixed income trader said.
The Czech crown, trading at 27.022 against the euro, remained stuck to the central bank's ceiling at 27.
New Czech central bank (CNB) board member Tomas Nidetzky told the daily Hospodarske Noviny that the bank may reconsider its plan to exit the crown cap if the European economic situation is bad.
"We keep to anticipate an exit from the CNB FX regime in the second half of 2017, while we believe that it might happen anytime (day) - not just on scheduled monetary-policy meetings," KBC analysts said in a note.
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