BUDAPEST: The Czech crown led a rally in Central Europe's forex markets on Tuesday after its economies beat high growth expectations in the first quarter.
Most of the currencies later retreated as many investors concluded that, with easing inflation accompanying the growth surge, a shift to a more hawkish regional monetary policy outlook still looked some way off.
But the crown stayed in the black, rising 0.3 percent to 26.445 against the euro by 1137 GMT after earlier touching 26.4, its firmest since the Czech central bank early last month removed a cap that had kept the crown on the weak side of 27 for around three-and-a-half years.
Romania led the jump in GDP output, with a 5.7 percent annual rise, Hungary's economy grew by 4.1 percent and Poland by 4 percent. Czech economic output grew by 2.9 percent.
Rabobank said the strong figures from Warsaw could result in Poland's central bank "adopting a more hawkish tone" at the two-day policy meeting that starts on Tuesday.
Citi said any change in rhetoric could come only gradually.
But the US bank's analysts said in a note that Tuesday's data could make the Czech central bank the first in the region to start to reverse policy loosening, earlier than the first quarter of 2018.
"This outcome also supports our forecast of a stronger (crown compared to consensus) at 25.6 vs. euro on (a 12-month) horizon," they added.
Before the cap's removal, investors bought crowns worth tens of billions of euros, betting it would firm once it was allowed to.
Most of the region's main currencies are already trading near peaks ranging from a few weeks to all-time highs, as are its stock exchanges, which have rallied in recent days.
The GDP data, buoyed by a pick-up in EU-sponsored investments, a rise in wages and healthy exports, also failed to lift shares, and Budapest's stock index gave up 0.5 percent.
The forint and the zloty retreated from an early rise to a respective 7-week high and a 20-month high.
Some analysts said Hungary's central bank might even loosen monetary conditions further by lowering the cap on its 3-month deposit facility.
Even though no change is expected in regional monetary policies, the yield on Hungarian and Polish 10-year government bonds rose by 4-5 basis points, to 3.08 and 3.395 percent, respectively.
"This is an opportunity for a correction, after a big decline," one Budapest-based trader said.
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