The crown led gains by Central European currencies on Friday after a report showed the Czech economy had grown more than forecast, reinforcing expectations for more monetary policy tightening in Prague. Chances had already grown the Czech central bank would raise interest rate increases further, after data released on Wednesday showed the country's inflation had also risen more than expected.
Annual Czech economic growth picked up to 2.9 percent in the fourth quarter, according to Friday's figures. Analysts had projected 2.4 percent growth. The central bank said later that the crown, which was already weaker than its forecasts, might weaken, forcing rate increases, if Britain quits the European Union with no agreement on the terms of its departure.
The crown gained 0.4 percent by 1000 GMT, trading at 25.71. If details in the GDP report, duet to be published later, show that government investments caused the upside surprise, "the impact on the rate setting will be relatively small," said Erste analyst Jiri Polansky in a note.
"The favorable development of the Czech economy and increase in inflationary pressures at the beginning of this year creates room for another hike," he said, but the global environment posed threats to that forecast. The threat of slower growth in the euro zone and the United States, suggesting their interest rates might drop, may also weaken the Hungarian central bank's appetite to tighten policy, analysts said.
This week's Hungarian data added fuel to expectations that the bank could start to reduce liquidity in forint markets in the next months. Core inflation picked up and the economy grew at a robust 5 percent rate in the fourth quarter of 2018. The forint gained 0.3 percent to 318.17 versus the euro.
The zloty also gained 0.3 percent, to 4.325, even though fresh figures did not change expectations for the Polish central bank would not raise rates, possibly for years. Annual Polish inflation fell to 0.9 percent in January from 1.1 percent in December, still below the central bank's 1.5 to 3.5 percent target range. Annual economic growth was 4.9 percent in the last quarter of 2018.
The region's currencies ignored gains by the dollar, which in the past often caused their weakening. Other emerging-market currencies, including the Turkish lira, also shook off that correlation with the dollar. Standard & Poor's is due to review its ratings for Turkey and Hungary late on Friday. Hungary's rating may be upgraded, said Peter Virovacz, an ING analyst in Budapest, even though a finance ministry official downplayed such expectations earlier this week.