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FX edges down ahead of key Fed meeting, Russia-Ukraine tensions eyed - REUTERS

JANUARY 24, 2022

BUDAPEST, Jan 24 (Reuters) - Central European currencies edged down or held steady on Monday as investors held their breath ahead of the U.S. Federal Reserve's meeting later this week and kept a close eye on developments over tensions between Russia and Ukraine.

"Although markets have been betting on a rate hike by the Fed already for some time, we might see increased volatility that might affect the CEE currencies" Erste wrote in a note.

Expectations for earlier rate hikes by the Fed and any escalation of tensions on Ukraine's border with Russia could lead to a strengthening of the dollar, which could pressure CEE currencies, traders and analysts said.

Investors were also waiting for a meeting of the National Bank of Hungary scheduled for Tuesday, at which a Reuters poll of analysts expects the base rate to be raised by 30 basis points to 2.7%.

"Whether a hike of 30 basis points will be enough for strengthening will depend on what the global mood is like tomorrow," an FX trader in Budapest said.

The Hungarian forint eased 0.3% to 359.00 on Monday.

The Polish zloty weakened just 0.1% to 4.5430 per euro, giving up some of its gains from late Friday when it jumped after Central Bank Governor Adam Glapinski said that interest rates in Poland should rise more than the market currently expects.

The National Bank of Poland (NBP) holds its next rate-setting meeting on Feb 8. In January, the bank raised its main interest rate by 50 basis points to 2.25%, the fourth hike in as many months as it grapples with a surge in inflation.

Shares in the CEE region eased in a global risk-off mood, with Warsaw leading losses as it fell 0.76%. Budapest was 0.5% lower while Prague lost 0.22%.

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