Central European currencies steady as Fed rate decision looms

Currency Steady: Central European currencies had a lackluster day Tuesday, the Hungarian forint down and all the others little changed as investors looked to the US Federal Reserve's interest rate decision Wednesday and what the move may mean for currency and monetary policies in the region.

Forint Shows a Slight Decline

The Hungarian forint trimmed 0.1 percent against the euro, trading at 394.50. The currency has thus far remained within the gains it made during the previous four sessions. "The forint briefly strengthened past 394 on Monday but closed within the 394-395 range, where it continues to trade," brokerage Equilor noted.

Fed Decision to Impact Regional Central Banks

The Federal Reserve's decision on Wednesday is likely to serve as a model for central banks in Central Europe, where policymakers are weighing further easing of policy as part of the weakening of inflation and an underwhelming rebound of the economy. Markets are increasingly predicting a major, 50-basis-point rate cut by the Fed, which has already gone some way to weaken the dollar and to boost risk appetite.

The decision by the Fed is directly relevant to the Hungarian National Bank, because the latter is scheduled to hold its policy meeting next week after the bank halted the rate cuts in August.

Czech Republic and Poland Watch for Fed Signals

Czech central bank board member Jan Kubicek is said to be supporting a quarter-point rate cut this month with soft economic data, a firmer currency, near-target inflation, and lower wage growth. The Czech National Bank had earlier slowed down its easing pace to 25 basis points in August by lowering the main repo rate to 4.50 per cent. Polish zloty dropped 0.1 percent to trade at a euro-plus 4.28. "Financial markets are awaiting the outcome of the two-day Fed meeting, which opinion remains divided on how large the eventual rate cut will be. A 50-basis-point move is currently considered more likely," said Bank Millennium in a report. The EUR/PLN exchange rate stabilized at around 4.28 in the previous week.

With the Federal Reserve's decision approaching, there is nothing but deep interest from investors and central banks as to the effects on local monetary policies and currency movements.