BUDAPEST: The Czech crown pulled back from seven-week lows on Wednesday after the Czech central bank (CNB) disappointed some investors by not raising its interest rates further.
The dollar's global firming, meanwhile, led to selling in other Central European currency and government bond markets. The zloty fell to its weakest levels since mid-May versus the euro .
The CNB, which early last month became the first European Union central bank to lift interest rates since 2012, held fire on Wednesday.
The Czechs have Central Europe's lowest inflation target at 2 percent and their price index has exceeded that level. The CNB is more sensitive to hawkish signals from big central banks in the world, mainly the European Central Bank.
Fed Chair Janet Yellen said on Tuesday that the Fed needs to continue rate hikes despite uncertainty about inflation. Her comments led to a firming of the dollar and a rise in government bond yield globally, including Central Europe.
Before the Czech meeting, expectations for an imminent hike strengthened, boosting the crown to 26 per euro for the first time since the CNB's rate hike on Aug. 3.
After the CNB kept rates on hold, the crown retreated to 26.1 aper euro, its typical level in the past 5 weeks.
By 1429 GMT, it firmed to 26.035, after the bank said rate setters voted against a hike by a slim margin. Governor Rusnok said board members understood that economic data justified further rate hikes.
Elsewhere, the dollar's strength weighed on the region's most liquid currencies. The zloty and the forint initially fell to their lowest levels since April-May initially.
But the Hungarian unit, after sliding for weeks due to a deposit rate cut and liquidity-boosting measures from the central bank, rebounded by late trade, partly helped by stop-loss deals in its cross with the zloty, dealers said.
"Somehow investors like the zloty less than the forint at the moment," one Budapest-based dealer said.
The zloty has weakened this week partly due to political concerns. Polish President Andrzej Duda announced proposals about judicial reforms and Poland's plans for the reform have fuelled tension with Brussels and some EU capitals.
The key cause of its slide on Wednesday was the dollar's strength, said Piotr Pop?awski ING's senior economist in Warsaw.
It fell 0.7 percent against the euro to 4.316 by 1429 GMT, while the forint firmed 0.2 percent to 310.80.
Government bonds mostly eased.
Poland's 10-year bond yield rose 5 basis points to 3.35 percent. Hungary's corresponding yield was fixed 4 basis points higher, at 2.49 percent, while the Czech 10-year yield dropped 4 basis points to 1.148 percent.
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