PRAGUE: Central European currencies opened weaker on Friday as investors fled emerging markets in favour of safe-haven assets after a ratings downgrade of the world's major banks by Moody's revived concerns over the health of the global economy.
Riskier assets, starting with global stocks, have been under pressure since the US Federal Reserve signalled a weaker outlook late on Wednesday but took no extra steps to prop up the economy. Moody's move late on Thursday to cut the credit ratings of 15 global banks added to negative sentiment.
"The combination of these factors meant a clear signal for investors that risk is off and they dumped the (CEE) currencies, hitting the crown and the forint the most," said David Sykora, an FX dealer at CSOB.
By 0720 GMT, the forint shed 0.1 percent to 287.5 per euro, while the zloty lost 0.3 percent to trade at 4.278. The zloty's losses on Thursday were curbed by state-owned BGK bank which sold an unspecified amount of euros buying the Polish unit.
The crown, the region's worst performer in June, was broadly flat at 25.807.
While the zloty sometimes receives support from the BGK to stem its fall, the crown has been left to depreciate as the central bank weighs whether to cut interest rates next Thursday.
Dealers said there was room for the Czech unit to fall below the 26.000 per euro level, possibly all the way to 26.200, without the central bank offering verbal props as it has in the past, because its depreciation helps ease monetary conditions in the highly open central European economy by cheapening exports.
A Reuters poll showed on Thursday that a majority of analysts expect policymakers to trim the key two-week repo rate by 25 basis points on June 28 to a new record low of 0.5 percent to counteract disinflationary risks stemming from the country's two-quarter-old economic recession.
Economists have said the crown, the region's only currency to have weakened since the start of June as the others firmed, would have to lose beyond the 26.000 per euro level to convince the central bank a rate cut was not needed.
The forint has gained more than 6 percent since the start of June on expectations Budapest will seal a deal with lenders including the International Monetary Fund, which would reassure investors over its finances and help lower its borrowing costs.
EU finance ministers are expected to lift financial sanctions on Hungary on Friday, restoring Budapest's access to half a billion euros of frozen funds and rewarding Prime Minister Viktor Orban for dealing with budget shortfalls.
By 0755 the forint was virtually flat at 287.32. "I think here was a fairly strong support level at 286.30 and the forint could not stay there, so this level I think will be the bottom of the range for today, while the top at around 288.50," a dealer said.
The Hungarian central bank also meets on rates next week and all analysts in a Reuters poll expect it to hold fire but they expect a cut thereafter.
Policymakers meet also in Romania next week, where economists expect rates on hold for a second successive meeting, as the central bank tries to balance support for the struggling economy with an expected uptick in inflation and a weak leu currency.
The leu was 0.07 percent down by 0800 GMT. Stock markets were weaker across the region, led by nearly a 1 percent drop in Bucharest's.
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