Currencies edge lower as traders reassess rates outlook

Central European currencies were a touch weaker on Wednesday, with markets assessing the outlook for interest rates in the region after inflation in Poland surprised on the downside.

Traders also awaited signals on U.S. monetary policy later in the day, with Federal Reserve Chair Kevin Warsh appearing at a European Central Bank Forum in Portugal and the ADP jobs numbers providing a preview of the non-farm payrolls report a day later.

The Polish zloty OANDA:EURPLN was down 0.2% at 4.3055 per euro at 0750 GMT.

Data published on Tuesday showed inflation in Poland in June was lower than expected, suggesting the recent oil price shock has not had a lasting influence on prices.

As a result, markets that expected a series of rate hikes in Poland this year only a few weeks ago have now priced them out. The stronger dollar and declining expectations for interest rates have been the major reasons for zloty weakness in recent weeks, analysts said.

"The probability that Poland’s National Bank (NBP) will need to hike the rate has slipped to almost zero. Indeed, in our view, rate cut bets could return for discussion by Q4, with some commentators already floating March 2027 as a realistic timing for easing to start," Commerzbank analysts wrote.

"This shift strips away one of the few remaining supportive factors for the zloty exchange rate. At the same time, the Czech National Bank (CNB) has a much greater likelihood of still hiking its key rate. We therefore see the prospect of PLN underperforming the Czech koruna in coming months."

The Czech crown OANDA:EURCZK was down 0.1% at 24.2850 per euro, while the Hungarian forint FX:EURHUF lost 0.2% to 356.65 per euro.

"In yesterday's trading, the euro-forint exchange rate breached the 355 resistance, the next hurdle is the 50-day moving average at 356.85, while the 355 level now provides support," Brokerage Equilor said.

Stock markets in the region were mixed, with Warsaw GPW:GPW and Prague PSECZ:PX falling between 0.2% to 0.4%, while the main index in Budapest BET:BUX gained 0.4% and Bucharest BVB:BET rose by 1%.