Market News

Currencies regain ground on rate hike hopes after Fed signals - REUTERS

JANUARY 27, 2022

PRAGUE, Jan 27 (Reuters) - Central European currencies recouped some losses on Thursday as monetary policy tightening in the region remained supportive, a day after the U.S. Federal Reserve flagged a likely interest rate hike in March.

Fed Chair Jerome Powell's comments on Wednesday boosted the dollar, whose strength often cuts appetite for riskier emerging-market assets.

Central Europe's currencies weakened in out-of-market trade on Wednesday, but by mid-morning on Thursday had returned to firmer levels.

The Czech crown edged up 0.1% on the day to 24.47 per euro and the Polish zloty rose 0.3% by 0926 GMT.

A Prague trader said the gains were fragile at the moment. "I still think it is a bit of wait-and-see," the trader said.

Czech debt markets were waiting on a short-term Treasury bill auction midday after the finance ministry opted last week against selling bills due to high yields demanded, with expectations of another Czech rate hike next month.


Reuters polls expect CEE currencies to gain in 2022, helped by interest rate hikes as central banks tighten policy to battle strong inflationary pressures.

Hungary's central bank lifted interest rates above expectations on Tuesday, and on Thursday hiked its one-week deposit rate, used to tackle market volatility, by 30 basis points.

The forint was up 0.1% at 359.57 to the euro.

The currency, however, has slid from peaks hit in the past week, like others in central Europe as investor focus turned to U.S. monetary policy.

"News from the Fed and the strengthening of the dollar keep the CEE region from significant strengthening," a Budapest-based trader said.

"The big question is how the market will react when tightening in the United States will start in March. Even though the base rate in Hungary will be probably even higher than now, I expect a weakening of the forint, and all emerging currencies, at least temporarily then."


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