Friday, August 10, 2007

Czech Koruna Last Safe Haven?

From Bloomberg today:

Slovak Koruna Heads for Third Weekly Drop on Subprime Concerns

By Yon Pulkrabek

Aug. 10 (Bloomberg) -- The Slovak koruna headed for a third weekly drop versus the euro as concern the U.S. subprime crisis is spreading to Europe curbed demand for emerging market assets.

The koruna fell to a one-month low today after the European Central Bank yesterday provided 94.8 billion euros ($130 billion) to lenders to avert a credit crunch. Slovakia's currency was also hurt by government reports showing the trade deficit widened more than forecast and inflation stalled.

``Credit-market jitters and the liquidity squeeze we had yesterday'' are weighing on the koruna, said Elisabeth Gruie, an emerging markets currency strategist at BNP Paribas SA in London.

Against the euro, the koruna fell to 33.533 by 12:23 p.m. in Bratislava, after earlier touching the lowest since July 4, from 33.470 yesterday and 33.404 on Aug. 3. The currency slid more than 1 percent versus the dollar this week to 24.4905.

Concern about the subprime crisis sent global equity markets lower and the NTX index of 30 companies in Central and Eastern Europe fell 1.9 percent, its biggest drop since Aug. 1.

The Slovak Statistical Office today reported the June trade deficit widened to 4.5 billion koruna ($184 million), exceeding the 0.7 billion koruna shortfall forecast by economists in a Bloomberg News survey.

The CPI rate slowed to zero percent in July, a separate report showed, from 0.3 percent price growth a month before.

Turkish Lira Drops

The Turkish lira dropped 1.7 percent versus the dollar this week to trade at 1.2965 and touched its lowest, 1.3080, since Aug. 1. The lira also declined to 1.7744 per euro, compared with 1.7503 last week. Turkish bonds also fell on the week.

Turkish Prime Minister Recep Tayyip Erdogan said he'll respect the will of the electorate in selecting a presidential candidate, indicating his party will nominate Foreign Minister Abdullah Gul to the post.

Erdogan's party won the July 22 early elections called after the army objected to Gul's candidacy in April and May. ``It remains to be seen what the army's reaction will be to this candidate,'' Gruie said.

The Czech koruna gained 0.3 percent to 28.057 per euro. The Czech koruna, back by the European Union's lowest borrowing costs, is a favored funding currency for carry trades, where investors borrow in low interest rate currencies to buy higher- yielding assets. In times of greater risk aversion, funding currencies tend to gain as high yielders decline.

``In the current environment, the Czech koruna is the only safe haven currency in the region,'' Nigel Rendell, an emerging market currency strategist at Calyon, the investment banking arm of Credit Agricole SA, said in a e-mailed note. The koruna was little changed on the week.

The Romanian leu fell 0.7 percent to 3.1885 per euro while Poland's zloty gained 0.5 percent against the common European currency this week, sliding 0.2 percent today to 3.7767.

Hungary's forint was little changed in the week at 252.38 per euro. The yield on the 6.75 percent Hungarian government bond due February 2017 rose 3 basis points to 6.76 percent.

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