Forint, Czech crown extend gains as central banks tighten rates

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Forint, Czech crown extend gains as central banks tighten rates

PRAGUE, Jan 5 Reuters -- The Hungarian forint and Czech crown extended their gains on Wednesday, as central European currencies make a strong start to 2022, boosted by interest rate hike expectations and fresh positioning. The forint has led the charge, rising over 2% so far in 2022, as it gained a further 0.1% in morning trading on Wednesday. The zloty, fresh off a Polish central bank rate hike that was in line with expectations on Tuesday, pulled back a bit. In 2022, analysts believe that the region's currency will gain as central banks continue to tighten policy to fight inflation that has surged to multi-year highs. The US currency was just below two week peaks before the release of the Fed meeting minutes, a draw that could be a drag on Wednesday as the U.S. currency fell below two week peaks due to the U.S. Federal Reserve hiking rates this year. If the National Bank of Hungary keeps raising rates as promised and we reach positive interest rate territory in a few months, that could put the forint on a firm path this year, a Budapest trader said. Hungary's central bank increased its one-week deposit rate by 20 basis points to 4% last Thursday, extending a series of interest rate hikes. It raised the benchmark base rate by 30 basis points to 2.4% earlier in December. Poland's central bank has raised interest rates by 50 basis points, to 2.25%, suggesting further tightening was on the horizon as inflation peaked above 8% by the end of the year. The zloty had dipped 0.1% to near 4.57 per euro by 0936 GMT, while the forint added a similar amount and traded at 362.10, at a 1 month high. The crown rose by 0.2% to 24.61 after passing two psychological levels at 25.00 and 24.70 in the past two weeks. After a 5.5% rise in 2021, the crown has gained more than 1% already in 2022. In our new outlook, we expect quicker gains for the Czech currency at the beginning of the year when Czech market rates rise and reach peaks, said bank CSOB, adding that the interest rate differential with the euro zone would continue to attract investors.