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Forint touches 14-month high on speculation over trading band - extended

The Hungarian forint traded near the highest against the euro since January 2006 on speculation the state may abandon its currency trading band.

The forint is allowed to rise or fall 15% from 282.36 per euro, similar to the European Union's exchange rate mechanism, even as Hungary has yet to set a date for adopting the euro. Former central bankers, including Werner Riecke and István Hamecz, said earlier this month the band should be dropped. „There is some speculation that Hungary might abolish the fluctuation band,” said Dániel Bebesy, a currency strategist at the Budapest unit of Banca Intesa. „If they do, that would be a clear indicator that decision makers see more room for forint firming.” Against the euro, the forint traded at 249.43 at 4:20 p.m. in Budapest, from 249.53 late on March 9. It may trade around 249 per euro this week, Bebesy said. The decision on abandoning the band must be made jointly by the government and the central bank.

Prime Minister Ferenc Gyurcsány in a March 5 interview with newspaper Napi Gazdaság said the central bank has proposed ending the band several times and András Simor, who became monetary policy chief that day, may suggest it again. The yield on the Hungarian 6% bond due October 2011 rose 7 basis points to 7.39% in Budapest. The spread over the equivalent maturity German bund widened to 342 basis points. The foreign holdings of Hungarian bonds fell to Ft 3.13 trillion (€12.6 billion), after reaching a record high of Ft 3.15 trillion on March 9, according to data compiled by Bloomberg. In other trading, Poland's zloty dropped to 3.87 per euro in Warsaw. The yield on Poland's 5.25% bond due October 2017 advanced to 5.19%. The spread over the similar maturity German bond advanced to 127 basis points. The zloty was hurt by a deterioration in global risk appetite, as it's „a proc-cyclical currency, strongly linked to global equity markets,” said Tania Kotsos, a currency strategist at RBC Capital Markets Ltd. in London.

The stock markets in the US and western Europe fell after New Century Financial Corp. of the US said it can't meet demands by creditors for accelerated payments, rattling investor confidence in equities. The Czech koruna fell to 28.22 per euro in Prague, from 28.19 late on March 9. Czech central bank board member Mojmir Hampl said the timing of a potential rate increase is still unclear, Internet financial portal reported. Pro-inflationary and anti-inflationary risks are relatively balanced and the moment of a potential rate increase is certainly more distant than it seemed to be in the final months of last year, Hampl said in an interview with The Czech Republic's benchmark interest rate, at 2.5%, is the lowest in the 27-nation EU and inflation is the second-lowest behind France, with Austria and the Netherlands. (Bloomberg)