FX, stocks weaken amid Russia-Ukraine tensions

BUDAPEST, Jan 21 (Reuters) – Central European stocks and currencies weakened on Friday as sentiment was weighed by Russia-Ukraine tensions and as investors awaited cues from the U.S. Federal Reserve on policy tightening.

Warsaw (.WIG20) led losses in equities, down 1.7%, as CEE stocks followed a sell-off in European and global markets that was sparked by jitters around the U.S. Federal Reserve’s pace of tightening monetary policy and weak economic data.

Equities in Budapest (.BUX) slid 0.63% and Prague’s (.PX) shares were 0.28% lower. Bucharest (.BETI) lost 0.93%.

Currencies were still trading at strong levels after steady gains since the start of the year when central banks raised interest rates.

Traders said that investors were closely watching a meeting between Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Antony Blinken due later today in Geneva amid Western fears that Russia may invade Ukraine.

“Good news could help and any escalation of the conflict would hurt the entire region,” an FX trader in Budapest said. “It has not strongly affected CEE currencies yet, but it easily could as we are close to where tensions are rising.”

The Hungarian forint slid 0.34% on the day and was trading at 357 versus the common currency as investors were looking ahead to the central bank’s rate-setting meeting next Tuesday.

A Reuters poll of analysts expects the base rate to be hiked by another 30 basis points to 2.7%.

“The rate meeting could bring bigger moves in the forint’s rate, depending on the size of the rate hike,” another trader in Budapest said.

“Some market participants say that a hike of more than 30 basis points is needed for the central bank to maintain its credibility with such high inflation.”

Hungarian inflation stayed stuck at a 14-year high of 7.4% year-on-year in December, defying expectations of a slowdown.

The Czech crown weakened 0.45% and was trading at 24.3150 per euro after hitting a fresh more than 10-year high in the previous session.

The firming of the crown “was stopped at 24.20, and another strong technical barrier is around 24.10, which will likely be difficult to break without any new significant positive impulses,” CSOB said.

Elsewhere, the Polish zloty eased 0.28% to 4.5286 to the euro. The Romanian leu edged down 0.01% to 4.9455 per euro.

Additional reporting by Jason Hovet in Prague; Editing by Amy Caren Daniel

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