Polish zloty seen leading CEE FX gains as pandemic recedes

WARSAW: The Polish zloty will lead gains among central and eastern European currencies over the next 12 months, a Reuters poll showed, as vaccination programmes are expected to help economies return to normal after the coronavirus pandemic.

The region's currencies slipped in February on concerns about the third wave of the pandemic and on a stronger dollar and higher US treasury yields. But analysts expect the picture to brighten over the coming year.

"CEE currencies were recently hit by global volatility in government bond yields and in risk sentiment related to reflation trade," said Radomir Jac, chief economist at Generali Investments CEE in Prague. "I expect that the situation will calm in the coming weeks."

The Polish zloty, which has slipped 1.3% since mid-February, was expected to gain 3.1% versus Tuesday's European close to trade at 4.40 to the euro in 12 months' time.

"We expect the zloty to remain largely stable in the first half of the year, while we see the zloty strengthening in the second half of the year when the vaccination process will be advanced enough to lift most of the restrictions," said Marcin Sulewski, an economist at Santander Bank Polska.

Sulewski said that in the second half of the year he expected there to be no more speculation about central bank interventions to weaken the zloty.

The Czech crown was under pressure in February as the country tightened lockdown measures amid a surge in COVID-19 infections. However, it was seen firming 2.6% to 25.50 to euro over the next 12 months as the pandemic situation improves.

"Gradually, the better situation on the local market will be added to the favourable situation on global markets," said Jan Vejmelek, chief economist at Komercni Banka.

"We continue to believe that the CNB will be one of the first central banks in the world to raise interest rates this year. This will be an important factor supporting the koruna (crown), especially in H2 '21."

The Hungarian forint, which hit its lowest level of the year on Tuesday, was seen firming 2.5% to 355.0 against the euro. "The Hungarian central bank may... tolerate some strengthening of the forint from its current weak levels," Jac at Generali Investments said.

The Romanian leu was seen weakening 1.25% to 4.94 to the euro amid fiscal deficit concerns.

"Political risk and subsequent rating downgrade risk receded over the past months, but fiscal uncertainties are still present as plans to boost budget revenues and limit expenditure could turn out to be too optimistic," said Jakub Kratky a financial analyst at Generali Investments CEE.