BUDAPEST: The zloty led a weakening of Central European currencies on Monday as Friday's hawkish comments from Federal Reserve chief Jannet Yellen cut risk appetite, with lingering concerns over the Polish government's policies also weighing on sentiment.
The zloty set a new 4-week low at 4.342 against the euro, and traded at 4.3388 at 0851 GMT, weaker by 0.4 percent from its previous close in thin trade as London investors were on holiday.
"The weakening is due to the dollar's firming and Yellen's comments," one Budapest-based currency dealer said. "The forint is clearly pulled down by the zloty, but its easing is not convincing."
The leu and the forint eased by only 0.1 percent, and trading at 309.02, the Hungarian unit lingers near its strongest levels since early March.
The forint has been backed by Hungary's robust current account surpluses and a shift to more business-friendly government policies.
Polish assets are kept fragile by worries over Warsaw's tension with Brussels over the rule of law and a government drive to gain control in the banking sector mostly owned by foreign investors.
Warsaw's bluechip equities index firmed a touch on Monday as regional stock indexes did not track a decline of Western European shares which they mostly underperformed this year.
The stocks of Poland's biggest lender PKO BP rose by 0.8 percent after it reported a rise in second-quarter earnings.
Other financial sector stocks including state-owned insurer PZU and the second-largest Polish bank, Pekao, eased, pulling down the index.
PZU and the state run development fund PFR are in talks to offer a below-market 3 billion euros ($3.36 billion) to buy a 40.1 percent stake in Pekao from Italy's Unicredit, the Financial Times reported.
Poland's finance ministry said the 2016 budget deficit could be 42 billion zlotys ($10.85 billion), down from 54.7 billion in its initial plan, which could be positive news to government bonds, although there are concerns that the government may increase spending and extend the deficit in 2017.
Bond yields rose by a few basis points, tracking a rise in debt yields in most European markets since Fed Chair Yellen's comments.
Investors will watch PMI manufacturing activity figures to be released in Central Europe on Thursday.
Poland's recent economic figures suggested a slowdown in growth and added fuel to speculation that the central bank may cut rates in a move that would make bonds relatively less attractive, particularly if US rates rise.
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