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Most CEE currencies seen returning to gains in the next year: Reuters poll

Economic IndicatorsOct 04, 2019 04:16AM ET
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By Jason Hovet and Miroslava Krufova

PRAGUE (Reuters) - Central Europe's leading currencies should firm against the euro over the next year, lifted by solid growth once global worries calm, although the expected gains will be less than previously forecast, a Reuters poll showed on Friday.

The Czech crown (EURCZK=), Polish zloty (EURPLN=) and Hungarian forint (EURHUF=) have struggled to reverse losses suffered in the last two months as they come under pressure from U.S.-China trade tensions and Britain's uncertain exit from the European Union.

Friday's poll showed the forint, which hit a record low of 336.28 to the euro last week, should regain some ground before the end of the year and firm the most over the next 12 months.

The zloty and crown will likely tread water in the last quarter of 2019 before returning to gradual gains in 2020.

Radomir Jac, chief economist for Generali (MI:GASI) Investments CEE, said local worries, such as relaxed monetary policy in Hungary and uncertainty over past foreign currency loans in Poland, have added to global risks.

"As some of these factors should be clarified in the coming weeks and months, I would expect regional currencies to recover," he said.

"Domestic fundamentals are supportive, certainly in the case of the Czech crown and Polish zloty, and I think that also the Hungarian forint has room to recover a bit from record lows."

The median forecast in the poll saw Hungary's forint climbing to 328.25 to the euro in the next year, up 1.5% from Thursday midday trade. In a September poll, analysts had forecast a rise to 317 in 12 months.

(GRAPHIC: Hungarian forint - https://fingfx.thomsonreuters.com/gfx/mkt/12/6889/6820/EURHUF.png)

The forint has lost close to 4% so far in 2019, more than double the declines of the zloty or Romanian leu (EURRON=).

Amid global worries, Germany's manufacturing sector - a key trade link for the central European region - is already battling recession. But central Europe has been resilient so far, with second-quarter growth between 2.0% and 4.9% thanks to domestic demand.

Inflation remains high and central banks in the region are in wait-and-see mode even while the European Central Bank and U.S. Federal Reserve loosen their policy.

But currencies have yet to benefit from interest rate differentials.

In the case of the crown, which the poll forecast to rise by 1.0% to 25.50 to the euro in a year's time, the Czech central bank (CNB) delivered its eighth rate hike in two years in May and continues to debate tightening.

Commerzbank (DE:CBKG) said despite short-term global worries, it expected the crown "to appreciate moderately against the euro over the forecast horizon, not least due to the solid domestic economy and the more restrictive CNB relative to other central banks."

(GRAPHIC: Czech crown - https://fingfx.thomsonreuters.com/gfx/mkt/12/6888/6819/EURCZK.png)

The poll was conducted before a European Court of Justice ruling on Thursday that favored Polish consumers who took out mortgages in Swiss francs, allowing them to ask Polish courts to convert their loans into the local currency.

ING's EMEA FX and IR strategist Petr Krpata said the ruling could have a "slow burning effect on the zloty as the court cases may take years to resolve."

The zloty is forecast to gain 0.9% to 4.30 to the euro over the next 12 months.

(GRAPHIC: Polish zloty - https://fingfx.thomsonreuters.com/gfx/mkt/12/6890/6821/EURPLN.png)

Most CEE currencies seen returning to gains in the next year: Reuters poll
 

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