Zloty falls on uncertainty around FX mortgages; Czech stocks hit 13-month high

BUDAPEST: The Polish zloty eased to a four-month low on Thursday amid uncertainty over a pending court decision that could set the future for Swiss franc mortgages, in the latest twist to a saga that could weigh on local banks.

The Polish Supreme Court was earlier expected to clarify on March 25 questions related to what banks can claim from clients if a mortgage contract is cancelled. However, the court on Thursday postponed the issuance of guidelines until April 13.

"There are some worries that this decision will not be in favour of banks and so maybe they will have to change their reserves into Swiss francs," a trader in Warsaw said.

The Polish currency eased even as regional peers held stable a day after the US Federal Reserve reiterated its dovish stance, providing some relief for emerging markets.

The US Federal Reserve reiterated its accommodative policies, which led to a weaker dollar that helped lift CEE currencies in the evening on Wednesday.

They gave up most of those gains Thursday morning. The Czech crown was trading flat at 26.152 per euro.

The Polish zloty slid 0.37%, underperforming its peers and trading at 4.624 versus the common currency.

The Hungarian forint was trading at 367.74 versus the common currency, hovering near all-time lows.

"The forint strengthened as far as 366 in the morning but then the mood turned around, today could be volatile," a Budapest-based FX trader said.

"US bond yields ticked down only a bit yesterday and this morning European yields are higher. Bond markets have not calmed down, which could keep emerging markets under pressure."

Rising US Treasury yields fuelled by inflation fears have affected CEE markets, driving yields higher since the start of February. "Bond yields in Hungary are ticking up this morning, tracking core markets, but not rising as much as 10-year US Treasuries," a Budapest-based fixed income trader said.

Hungary also sold government bonds worth 78 billion forints at an auction, with average yields rising on most tenures from last week's auction. The five-year yield rose to 1.87% from 1.81% last week, while the 10-year yield rose to 2.75% from 2.62% at last week's auction.

Stock markets in central Europe firmed with Prague's equities adding 0.78% and hitting a 13-month high. Budapest was up 1.18%, while Warsaw strengthened 0.4%.