1 August 2003, 13:40  Emerging FX-dollar strength hits C.Europe, lira eases

LONDON, Aug 1 - The main central European currencies all fell against a broadly firmer dollar on Friday, with the greenback up in anticipation of strong U.S. jobs data later on. The Turk lira dropped back ahead of a key IMF meeting. The dollar hit three-month highs against the yen and two-week peaks against the euro carried up by a tide of optimism about U.S. recovery prospects. The Czech crown led the way lower, with added weight coming from a surprise 25 basis point interest rate cut from the central bank on Thursday, taking rates to an all-time low of two percent. The crown hit four-month lows against the dollar around 32.355. The Polish zloty also tracked lower, but found support from positive current account data the previous session and analysts said it had scope to out-perform in coming days. "It may be little bit of euro/dollar today, but we had extremely good current account data...there is a growing perception that the zloty is cheap," said Juliette Declercq, emerging markets currency strategist at JPMorgan. Poland's current account gap fell to a five-year low of 83 million euros, well below market forecasts for a gap of around 290 million. Also currency positive was the government's statement on Thursday that it expects the zloty to strengthen to an average of 4.25 to the euro and 3.74 to the dollar in 2004. "This marks a sea-change in the government's position and adds to the view that we are likely to see a stronger zloty rather than a weaker one going forward," said Declercq. She added that offshore fund players had been looking to unwind currency hedges in the zloty in recent days to take advantage of the improved outlook. Many foreign investors sought to hedge their zloty exposure -- effectively taking out short positions -- last month amid domestic political turbulence and extreme market volatility in neighbouring Hungary. By 0930 GMT, the zloty traded at 4.3559 to the euro from 4.3589 and at 3.8980 to the dollar from 3.8675.
The Turkish lira dropped back with the market awaiting the outcome of an International Monetary Fund Executive Board meeting later on to discuss the release of a long-delayed $500 million tranche from Turkey's $16 billion loan pact. Analysts widely expect the money to be released after the Turkish parliament passed some key IMF-backed reforms earlier this week, including a measure to curb the military's influence in politics. "I think we're at the stage of buy the rumour sell the fact. All the positive news is out and there's nothing much else to keep supporting the lira," said Amir Ben Gacem, emerging markets analyst at HSBC. Ben Gacem said the market was also focusing on the figures from the central bank that showed it to have bought well in excess of $1 billion to stem lira gains when it strengthened under 1.4 million per dollar earlier in the month. "That is massive and this is why lira has lost ground in last couple of weeks. "The market will be reluctant to push the lira back to 1.4 million given the potential for further heavy intervention." The central bank and government have expressed growing concern that an overly strong lira is hurting the countries competitiveness. The lira traded at 1,435,000 to the dollar on the interbank market from 1,418,000 at Thursday's close.

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