European currencies ease on post-ECB profit taking, focus on US data

The headquarters of the European Central Bank (ECB) in Frankfurt am Main, western Germany.
The headquarters of the European Central Bank (ECB) in Frankfurt am Main, western Germany. PHOTO: AFP

WARSAW (REUTERS) - Central European currencies eased on Friday as uncertainty before the U.S. labour data release later in the day spurred profit taking among investors, who have been buying regional assets after dovish comments from the European Central Bank.

Actions being taken by global central banks to boost inflation and global growth remain the key drivers to Central Europe's assets and often overshadow local events like the release of the upbeat economic growth data from Romania.

According to the official data published on Friday, Romania's economy expanded 3.3 per cent in the second quarter versus a flash estimate of 3.2 per cent, driven mainly by domestic consumption.

Romania's currency, the leu, shrugged off the news and eased 0.24 per cent versus the euro, alongside other emerging European currencies like the Polish zloty or the Hungarian forint.

"(Leu's weakening) is in line with other regional currencies ... after post-ECB strengthening we are likely to see some position squaring ahead of U.S. data," said Ciprian Dascalu, chief economist at ING Bank in Bucharest.

As long as the uncertainty about U.S. rate prospects and Chinese growth lingers, the currencies are likely to remain on the weaker side, but the relatively high growth and ECB's dovish stance may support the region in the long run, analysts say.

Demand for the region's assets was already seen at the Hungarian debt auction on Thursday, which buoyed the country's bonds and attracted many foreign buyers.

Yields on Hungarian bonds fell by 4-6 basis points on the day while yields on Poland's debt remained close to the Thursday's close levels.

"There were some foreigners who wanted to buy bonds at the auctions but did not manage to ... I always hear about people who want to buy," said a fixed income dealer in Budapest.

Poland, Central Europe's largest economy, may become a regional laggard due to increased risks of fiscal easing and introduction of new banking taxes after the October parliamentary election.

"I think that the market has not started to price in all these risks in yet. Other regional markets have better chances for the safe-haven inflows," said Piotr Poplawski, analyst at BGZ BNP Paribas based in Warsaw.