CEE MARKETS-Currencies drift as Polish inflation cools, investors stay cautious

WARSAW, Oct 30 (Reuters) - Central European currencies struggled for direction on Friday after Poland reported lower-than-expected inflation in October, while high oil prices, weaker global stocks and caution ahead of next week's US midterm elections weighed on sentiment.

The US Federal Reserve and European Central Bank kept interest rates unchanged this week, but the ECB signalled that a December hike was likely.

"The Fed and ECB meetings brought some stabilisation to CEE currencies, in line with expectations, and we saw a rally in the forint and the zloty – the first in a week. However, the market suggests that this relief will not last long," ING said.

"Speculation regarding a resumption of US attacks on Iran, new highs in energy prices, and a return to a sell-off in the stock market are bringing a 'risk-off' mood back into play – exerting pressure on CEE currencies ... Our bearish bias remains, and the zloty appears the most vulnerable here."

Flash data published on Friday showed inflation in Poland slowed more than expected in October, to 3.5% year-on-year, the upper limit of the central bank's target range, from 4.1% in September, mostly due to a drop in fuel prices.

"The (Polish central bank's) November decision was (and is) on a knife-edge. It is clear, however, that today's CPI publication shifts the narrative slightly in a dovish direction," mBank posted on X after the data.

The Polish zloty was stable at 4.3885 per euro at 0847 GMT.

Elsewhere, the Hungarian forint were both little changed, the forint around 365.65 per euro and the Czech crown at 24.3350.

"The euro-forint exchange rate reached a key support zone in yesterday's trading, which lies between 364.70 and 365.30, a level worth watching in today's trading as well. On the upside, the 200-day moving average presents a reinforced resistance at 366.95," Brokerage Equilor said in a note.

Czech and Hungarian economic growth both slowed in the third quarter, with Hungary's GDP hit by a record drought that cut the performance of its agricultural sector, data showed on Friday.

Central European bourses fell in line with global stock markets, with the blue-chip index in Warsaw .WIG20 losing 1% and the main index in Budapest .BUX falling 0.9%.

Tech shares slumped on Friday on global bourses as investors scurried to safety from worries that huge and rising AI spending may not deliver sufficient returns.