PRAGUE, Sept 12 (Reuters) - The Polish zloty fell for a seventh straight day on Tuesday and erased its 2023 gains as its drop since a shock interest rate cut deepened and continued to drag on central European peers.
The Czech crown fell to its lowest level since the end of September 2022, having lost 1.7% in the past week, with markets raising bets on the size of Czech interest rate cuts this year.
Poland's central bank kickstarted its monetary policy easing last week with a much bigger-than-expected interest rate cut, which jolted markets.
The zloty hit a five-month low on Tuesday, losing 0.6% on the day to trade at 4.6755 to the euro at 0832 GMT, settling off a morning low of 4.6920.
"All risk models show that the zloty is now very volatile... Today we already have clear stop losses," a Warsaw trader said, adding the currency could start to stabilise already later on Tuesday.
"But the zloty is under pressure now and I don't think anything can be done about it."
Hungary's forint has gained in cross trading against the zloty this past week, with Hungarian interest rates still the highest in the European Union despite gradual policy easing already taking place being a draw for investors.
It eased 0.5% on Tuesday, in the middle of its recent trading range.
With Hungary and Poland loosening monetary conditions, markets have turned more attention to the Czech Republic, whose central bank has been cautious before starting rate cuts.
Markets now see chances of two rate cuts by the end of the year, with 3x6 forward rate agreements dropping more than 20 basis points since last week.
Czech rate setter Jan Prochazka was quoted as saying in a newspaper interview with E15 on Tuesday that the bank would be careful before cutting interest rates.
The crown was down 0.35% at 24.61 per euro by mid-morning after earlier falling beyond 24.64.
CSOB bank said that besides the impact of the Polish cut, there was "nervousness before Thursday's European Central Bank meeting, which could lead to further rate hikes in the euro zone".
The narrowing rate differential between central Europe and the euro zone is pressuring currencies in the region.
Elsewhere, Romania tapped foreign debt markets, selling 3.25 billion euros worth of five- and ten-year Eurobonds on Monday in issues that were met with high demand, with total bids exceeding 9 billion euros, according to data from Refinitiv news and market analysis service IFR. (Reporting by Jason Hovet in Prague, Karol Badohal in Warsaw, Luiza Ilie in Bucharest and Boldizsar Gyori in Budapest)
