FX gains on news of possible U.S.-Russia summit

BUDAPEST, Feb 21 (Reuters) – Central European currencies rose on Monday as risk appetite got a boost from news that U.S. President Joe Biden and Russia’s Vladimir Putin agreed in principle to a summit on Ukraine.

Currency moves in the region have been volatile due to tensions in Eastern Europe over the past weeks, although expectations of interest rate hikes have kept them anchored just off 2022 highs.

The Hungarian forint led currencies higher in the region on Monday, rising 0.45% to 356.20 per euro. It has added 3.7% since the start of the year.

The central bank is expected to lift rates another 50 basis points on Tuesday to keep up its fight against surging inflation.

“Everyone is watching the Russia-Ukraine tensions and now there is optimism over the possibility of Biden-Putin talks,” an FX trader in Budapest said.

“Tomorrow’s rate hike is taken for granted by investors, so it won’t really move the forint. If the central bank raised the base rate by more than 50 basis points, that would be positive for the currency, but I do not see a big chance for that.”

In Poland, the zloty gained 0.35% to 4.5152 per euro, supported by data showing strong retail sales data for January. That and robust industrial output data strengthened bets for further rate hikes.

“Overall, this all adds up for us to an environment in which the Monetary Policy Council (MPC) will continue to tighten monetary policy. We expect the main interest rate to be raised by 50 basis points in March,” Adam Antoniak, senior economist at ING Bank Slaski, said

Among other trade, the Czech crown edged up 0.02% while the Romanian leu was flat.

Markets in the region were also eyeing a series of bond auctions expected this week from the Czech Republic, Slovakia, Romania and Poland.

The benchmark Czech 10-year bond yield is around the highest in a decade. It spiked well above 3% last month but has since stabilized around that level.

Additional reporting by Jason Hovet in Prague and Alicja Ptak and Alan Charlish in Warsaw; Editing by Devika Syamnath

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