In Romania, Ponta has been locked in a bitter dispute with President Traian Basescu, who is reluctant to reappoint his leftist rival as prime minister. But he has limited options after Ponta's decisive win in Sunday's parliamentary poll. With Basescu in Brussels for an EU summit, his absence is delaying talks on forming a new government, helping keep the country in limbo at a time when it is due to start negotiating a new International Monetary Fund deal.
The leu gained almost 1 percent on Thursday thanks to the hopes that political uncertainty will ease. The rally slowed on Friday, with the unit up 0.04 percent to 4.474 per euro, after hitting its highest level since August 31 at 4.468. "The expectation is for political stability and a new IMF deal," said a Bucharest-based trader. The leu's gains came as other emerging European currencies stayed weak on prospects of looser monetary policy to stimulate economies suffering under austerity at home and a slowdown in trade with the crisis-hit euro zone.
In Romania, a spike in inflation and the political uncertainty caused by the feud between its president and prime minister has prevented rate setters from cutting interest rates to help an economy on the edge of recession. Ponta's party won a two-thirds majority in Sunday's election. The party tried unsuccessfully in the summer to remove Basescu from office, a move criticised by the European Union.
Basescu said at the time he would never again appoint Ponta as prime minister and he has given no clear signal since the election. Analysts say he may try to split Ponta's alliance of leftists, liberals and conservatives. "More positive price action could come in the near term but the longer-term picture remains murky," ING analyst Vlad Muscalu said in a note.
Societe Generale, in a regular weekly emerging markets note, said it was more positive on the leu, the only unit in the region to have lost ground this year. The French bank said it had closed a long euro position against the leu. The Polish zloty and Hungarian forint are among the best-performing currencies in the world this year with gains of around 9 and 11 percent, respectively.
But the two currencies are down up to 3 percent since a rally sparked by yield-chasers taking advantage of liquidity measures from global central banks started to fizzle in August, when expectations of easier monetary policy gained ground. The forint, and Czech crown were mostly steady on Friday while Poland's zloty edged some 0.1 percent higher.
"The market is very illiquid now and a higher volatility - if such one appears - is not related with currencies' fundamentals," said Piotr Kalisz, head of CEE Economics at Citibank Handlowy. "But prospects of a sharper slowdown will probably push currencies lower as soon as the first quarter of next year and we expect the zloty to weaken to around 4.3," he added.
Hungary's central bank meets next week, while Czech rate setters are also due to meet on policy. But with rates already near zero in the latter, markets are looking for signals on when they might opt for currency intervention as a next easing tool. "The CZK will underperform on the back of the weak growth outlook and risks of central bank FX intervention," Societe Generale said. Most are counting on Hungary's central bank (NBH) to continue an easing cycle by reducing its base rate a quarter of a percentage point to 5.75.
"It seems apparent that the doves on the MPC are more or less in full control of monetary policy," Danske Bank said. In Poland, the central bank has started its easing cycle last month, cutting borrowing costs twice since then to 4.25 percent and the market widely expect another interest rate cut as soon as next month.