BUDAPEST: Central European currencies moved sideways on Wednesday, unable to get significant support from rate hike expectations in the region as a stronger dollar and rising US treasury yields kept pressuring CEE markets.
The Polish zloty slid 0.05% on the day and was trading at 4.5770 per euro, giving up some of its gains from the previous session.
"The EUR/PLN exchange rate clearly moved away from the 4.60 level (on Tuesday)," PKO Bank wrote in a note. "It was largely influenced by growing expectations for interest rate hikes."
Poland's central bank surprised markets last week when it delivered a 40 basis point interest rate hike, sooner than any analysts expected.
The Czech crown slid 0.12% to 25.4050 versus the euro, unable to benefit from factors such as a hawkish central bank and higher-than-expected inflation data, CSOB wrote in a note.
Zloty leads regional FX gains, markets eye rate meeting
"The main problem are global inflation pressures that have sent American two-year yields to a year-and-a-half high and the US dollar along with it," CSOB said.
Markets have priced in a steep 100 basis points in rate hikes in the bank's final two meetings of 2021, with bets having risen since inflation data this week showed price growth spike much more than expected in September.
However, Czech rate-setters on Wednesday offered contrasting takes on the speed at which borrowing costs should increase.
The Hungarian forint edged up 0.05%, but was still trading at the weaker side of the important level of 360 per euro.
Hungarian government bond yields on the long end of the curve rose about 10 basis points since the central bank's government bond purchases on Tuesday afternoon, two fixed-income traders in Budapest said.
"We are just tracking core markets," one FI trader said. "As long as the forint remains weak and yields rise in the CEE region, we will follow them."
The yield on the 10-year government bond was 3.66% on Wednesday.
Stocks in the CEE region were mixed, with Warsaw weakening 0.54%, Prague easing 0.25% while Budapest added 0.22%.
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