CEE MARKETS-Crown weakens as inflation data surprised to the downside

WARSAW, Jan 7 (Reuters) - The Czech crown fell on Wednesday with lower-than-expected inflation data cooling some bets on rate hikes later this year, while other central European currencies remained mostly stable.

Currencies in the region hit multi-year or multi-month highs in 2025 but are facing a pullback.

"The region is holding onto year-end gains even though the rally in rates and the prospect of lower inflation across the board would suggest weaker FX," ING said.

The Czech crown EURCZK=, which hit a 27-month high in December, weakened 0.25% to 24.229 per euro by 1025 GMT as preliminary data showed inflation was unchanged at 2.1% year-on-year in December, below forecasts and sticking close to the central bank's 2% target.

Markets and analysts are expecting stable interest rates ahead, extending a pause since Czech policymakers last cut rates in May last year. Forward rates have been pricing in a chance that the next move will be a hike later in 2026.

WATCHING DATA

Elsewhere, the Hungarian forint and Polish zloty remained unchanged on the day as investors awaited fresh impulses.

In Poland, which holds a central bank meeting next week, the zloty EURPLN= traded at 4.2095 per euro, sticking to the strongest end of a long-held range around 4.25.

"(The zloty) will continue to be influenced by trends in core markets, which will be shaped by the preliminary HICP inflation reading for the eurozone and a number of macroeconomic data from the US," PKO BP analysts wrote in a note.

"In our opinion, a potential decline in eurozone inflation below 2% year-on-year in December 2025 could increase pressure on the euro and push the EUR/PLN exchange rate towards 4.20."

The forint EURHUF= was also little changed at 384.80 per euro. It had hit a nearly two-year high near 380 last month.

Stock markets in the region were mixed, with Prague .PX gaining 0.3% and Budapest .BUX losing 0.3%. Warsaw .WIG20 was leading gains with a rise of 1.1% as investors returned to the market after a holiday on Tuesday.