Forint, crown retreat as dollar firms and oil adds pressure

The National Bank of Hungary cut its base rate by 25 basis points to 6.50% on Tuesday, a move that initially supported the forint by narrowing the carry advantage over the euro. The rate decision also removed a tailwind: with the cutting cycle underway, the forint's yield premium is shrinking, making it less attractive to carry traders when the dollar firms.

The Czech National Bank held rates steady at 4.75% last week, a pause that had helped the crown hold its ground. Friday's pullback suggests the dollar move is overwhelming local policy divergence.

Regional equity indices were mixed. Budapest's BUX index edged up 0.1%, while Prague's PX index slipped 0.2%. Bond yields in both countries rose 2-3 basis points, tracking the U.S. Treasury selloff.

Poland's zloty, which had been the region's outperformer this month, also weakened, falling 0.2% to 4.28 per euro. Warsaw's WIG20 index dropped 0.4%.

The next test for the region comes with U.S. nonfarm payrolls data next Friday. A strong print would reinforce the dollar's bid and push central European currencies further from their recent peaks. A miss would revive the carry trade and likely pull the forint and crown back toward their highs.

The forint's next support sits at 400 per euro, a level that held during the March selloff. The crown has room to 25.30 before traders start defending the range.