Evidence of deteriorating economic conditions in central and eastern Europe fuelled a broad-based return to risk aversion in currency markets on Wednesday after Kazakhstan devalued its currency and Russia’s credit rating was downgraded.

Kazakhstan’s central bank said it had widened the trading band for the tenge, allowing the currency to fall by 18 per cent against the dollar to 150 tenge, in response to weaker oil prices and the impact of the global economic crisis.

Kazakhstan’s devaluation triggered a wave of selling of emerging market currencies, with Poland’s zloty plumbing a fresh five-year low against the euro, at 4.7005 zloty, before paring its losses to trade 0.4 per cent lower at 4.6540 zloty by mid-afternoon in New York. The Czech koruna slid 0.5 per cent against the euro to an intraday low of Kcs28.673.

Christian Lawrence, at RBC Capital Markets, said: “Kazakhstan killed risk appetite within currency markets.”

Hungary’s forint hit a record low of Ft304.24 against the euro, before reversing its losses to jump 0.7 per cent to Ft298.05, amid rumours that the central bank had intervened to prop up the currency. The central bank declined to comment.

Kazakhstan Sets New Range For The Tenge

The finger pointing begins: Kazakhstan blames devaluation on rouble.

Kazakhstan devalued the tenge by more than 18 per cent on Wednesday, blaming the sharp depreciation of the Russian rouble and falling oil prices.

The devaluation highlighted the plight of central Asia’s inter-dependent republics and their vulnerability to Russia’s economic woes.

The Kazakh central bank set a new range for the tenge, saying the currency would be allowed to fluctuate by about 3 per cent around a level of 150 against the US dollar. On Wednesday the tenge tumbled to 149 against the dollar from Tuesday’s levels of 122-124 – the far end of the central bank’s previous corridor of 117-123.

Grigory Marchenko, the chairman of the Kazakh central bank, pledged to support the tenge at the new level. “We have reached a new market equilibrium level and we will defend it,” he said. Kazakhstan has used up $6bn of foreign exchange reserves since October defending the tenge, including $2.7bn (€2.1bn, £1.9bn) in January alone.

Silliest Currency Statement Of The Week

This could be premature but I doubt it. I am awarding the silly currency statement of the week to Grigory Marchenko, the chairman of the Kazakh central bank, for “We have reached a new market equilibrium level and we will defend it.”

Excuse me, but if you have reached a new market equilibrium level, there is no need to defend anything.

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