Regional currencies faced brad-based sell-off yesterday as disappointment related to developments in the euro-zone. As a result the Czech currency slipped to 2011 lows, while the EUR/HUF pair broke above the magical figure 300. There were no serious regional-specific factors, which could trigger such moves, may be with an exception of Hungary. Recall that the Hungarian Government Debt Management Agency (ÁKK) experienced only weak demand in yesterday’s bond auction, so it sold HUF 8bn less then it planned, while there was a warning from the MNB related to the country’s fiscal developments. According the latest central bank estimate Hungary's ESA general government deficit could reach 3.1% of GDP, while the government targets the deficit at 2.5% of GDP.
Given the poor sentiment in global markets ahead of the upcoming EU summits, we think there a little chance that CE currencies and Hungarian bonds will be able to recoup their losses soon. Actually, if there is no forex intervention coming from the Polish side (either managed by the NBP or BGK) more losses could be on the table. In this respect, should the Czech koruna and the forint become weaker than it is more likely that the respective central banks would have to react (a at least in a verbal way) to implied easing of the monetary conditions.