Central European currencies strengthened on Thursday, May 31, recovering some ground lost earlier this
week, as concerns over Italy’s political turmoil receded a little and the dollar retreated against the euro.
Trading activity was muted as Polish and Austrian markets were closed for a holiday.
The Czech crown was up 0.1 percent to 25.815 against the euro at 0858 GMT, while the forint
extended Wednesday’s gains, strengthening a quarter of a percent to 318.94.
The zloty firmed 0.15 percent in illiquid international trade to 4.308. International market risks are keeping the region’s main currencies fragile, market participants said.
They are still trading near this year’s weakest levels, touched this week, apart from the leu. The Romanian currency fell to a 3-week low on Wednesday, having set its best levels since early January a week ago –
knocked down by political factors including a government plan to make mandatory pension funds optional.
Regional assets got hit this month by a sell-off in emerging markets due to a rally in the dollar and U.S. government debt yields. Worries that Italy might be heading out of the euro zone added to the pressure this week.
The dollar retreated beyond 1.17 versus the euro on Thursday, while a small rise in the U.S. 10-year yield kept it a safe distance from the key 3 percent mark, and Italian bond yields retreated following this week’s surge.
Italy’s 5-Star Movement and the League are looking to make arenewed attempt to form a coalition government, while two polls showed that most Italians wanted to keep the euro even though the two populist parties have been critical of the euro zone.
“Of course we do not know whether the calm is temporary or not,” one Budapest-based fixed-income trader said. “We will watch Friday’s U.S. NFP (non-farm payrolls) data,
Hungary’s debt rating may be upgraded on Friday (by Moody’s),while people continue to watch the political news from Italy and Spain,” the trader added.
Hungarian government bond yields dipped, with 10-year paper trading at 3.11 percent, down four basis points, while Czech and Romanian yields mostly eased.
Regional stocks mostly firmed. Bucharest’s main stock index eased 0.3 percent to its lowest level since Feb. 9, while Budapest gained 1.1 percent, drifting further off a one-year low hit on Tuesday.
Fears that Italy’s political mess will hurt its economy have weighed on bank shares in Europe, and the financial sector has a big weight in Central European indexes, Reuters reports.
