BUDAPEST/WARSAW: Polish government bond yields gave up some ground on Wednesday ahead of a meeting in Warsaw of the central bank at which it is expected to reaffirm its loose policy stance despite a rally in US and Central European yields in recent weeks.
Investors in Central Europe kept their eyes on the strong dollar and US 10-year Treasuries after the latter's yield broke through key resistance levels, prompting a sell-off in emerging market assets.
The European Union's fast-growing and relatively stable eastern economies are linked to the euro rather than to the dollar, but the sell-off reached their markets nonetheless.
Tracking a mild retreat in US and German yields, Poland's 10-year yield dropped 2 basis points to 3.26 percent on Wednesday, following a 30 basis point rise since April.
Wednesday's retreat of the dollar in its euro cross also eased selling pressure on the zloty.
It gained 0.2 percent to 4.286 versus the euro by 0746 GMT, drifting off a 7-month low reached at 4.302 on Tuesday, while Czech crown firmed a quarter of a percent and the forint 0.05 percent.
All 14 analysts in a Reuters poll last week projected that the Polish central bank would keep its 1.5 percent benchmark rate on hold on Wednesday.
Bond yields in the region and core markets rallied further since the poll, but the rise is unlikely to deter the bank from reiterating its forecast for no change in its record-low rates this year and next, analysts said.
Polish forward rate agreements price in a hike to come already late in 2019.
"We will hear today probably that the inflation is low, but we think that there is a risk that it may accelerate next year, so a rate hike in 2019 may happen," said Arkadiusz Urbanski, analyst at bank Pekao SA.
A hike may come even earlier, and expectations for tightening could strengthen the zloty if fuel prices continue to rise and a regionwide surge in wages starts to boost Polish prices, Raiffeisen analyst Stephan Imre said in a note.
Regional equities markets reflected some calm down after the past weeks' global jitters, with the main indices near Tuesday's closing levels.
Budapest's main index firmed slightly as OTP Bank shares, which have been on a rollercoaster around the key 11,000 forint level for weeks, rose by 2 percent.
Holding company Opus, a company part-owned by Lorinc Meszaros, an associate of Prime Minister Viktor Orban, gained 2.2 percent on reports that it would be added to MSCI's small cap indices.
The stocks of Polish insurer PZU rose 1 percent after it reported a smaller-than-expected fall in its first-quarter net profits.
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