After slowing their advance slightly at the beginning of the week, emerging market currencies made renewed gains on Tuesday, with central and east European currencies hitting more than 2-year highs.
The Polish zloty, Hungarian forint and Czech koruna have been some of the biggest beneficiaries of the recent weakness in the dollar, as they combine the relatively high yields of emerging markets like South Africa and Turkey, but with fewer political or economic risks. They have further benefited from recovery in the eurozone, where the European Central Bank has finally signalled a tentative move away from monetary stimulus.
Most emerging market currencies were in positive territory for the day at publication time, but the zloty, forint and koruna were the biggest climbers, strengthening 0.7 per cent, 0.9 per cent and 0.6 per cent respectively.
All three currencies hit their highest levels in more than two years.
Hungary’s central bank is due to make its latest monetary policy decision later this afternoon. The bank has been using unconventional policy measures to stimulate the economy, but it is widely expected to keep its key rates steady at 0.9 per cent.
If anything, the bank could begin to sound some cautiously hawkish notes in response to rising inflation, according to analysts at Commerzbank, who note that “any hawkish language, from even a minority within the MPC, will probably be quite [forint] supportive”.