Crown leads FX easing, inflation rates below forecasts

The Czech crown led the decline, shedding 0.2 percent to trade at 26.666 against the euro at 1251 GMT, while the forint and the zloty eased 0.1 percent.

The crown's volatility has jumped since the central bank (CNB) on Thursday abandoned its cap, which had kept it weaker than 27 versus the euro since 2013.

Investors built tens of billions of euros worth of long crown positions since last year, betting on a surge of the Czech unit once its cap was removed.

CNB Governor Jiri Rusnok was quoted by the newspaper Pravo on Tuesday as saying it could take up to two months for the crown to find a stable level.

He also said in an interview to the news website www.idnes.cz that "the amount of crowns, which the market players bought, is enormous".

He said the crown's volatility after the exit from the cap was much lower than the bank had expected.

The crown has roller-coastered between 27.25 and 26.5 against the euro since the exit.

One-month volatilities of the region's currencies against the dollar have jumped in the region anyway since last Wednesday due to geopolitical uncertainties, including the risk of a far-right win in France's presidential elections.

Lower-than-expected inflation figures released in the region may have contributed to the weakness of currencies.

Monday's 2.6 percent Czech annual inflation figure was higher than expected and briefly lifted the crown.

But Hungary's 2.7 percent and Romania's 0.2 percent figure, both released on Tuesday, were lower than forecast, while Poland confirmed its own lower-than-projected 2 percent figure.

The Hungarian data underpin the view that the central bank will keep its policy loose.

The Polish central bank could keep rates at all-time lows until at least the end of the first quarter of 2018 if inflation stabilises below 2 percent in coming quarters, rate-setter Rafal Sura said.

"The weakening (of the forint and Poland's zloty), however, started weeks ago and is related to the dollar's advance (against the euro)," said Budapest-based Raiffeisen analyst Zoltan Torok.

Elsewhere, the dinar gained 0.1 percent after Serbia's central bank kept its 4 percent key rate, the highest in the region, on hold as expected.

The kuna also continued its rebound from 2-month lows as troubled food and retail group Agrokor said last week that it was handing control to the state.