By Karol Badohal

Warsaw, March 23 (Reuters) -Hungary's forint led Central Europe's currency gains on Thursday after the U.S. Fed signalled a likely pause on rate hikes, weakening the dollar and boosting appetite for riskier assets.

In a widely expected move, the Fed raised interest rates by 25 basis points on Wednesday, but recast its outlook to a more cautious stance after the collapse of two regional banks in the United States stoked fears of a banking sector crisis.

The Fed shift would align more with central Europe, where policymakers having been holding steady on policy since last year after sharp hiking cycles started earlier than global peers like the Fed or ECB.

A widening rate differential has put some pressure on currencies.

Markets see rates in the Czech Republic and Hungary staying unchanged at policy meetings next week as rate setters there show no willingness at the moment to hurry into rate cuts even as their economies tipped into recession at the end of 2022.

"We expect central banks in Czechia and Hungary to stick with relatively hawkish messaging at their meetings next week, which may be a further positive for CEE FX too," said Nicholas Farr, emerging Europe economist for Capital Economics.

"That said, the outlook for CEE currencies hinges in large part on what happens to global risk appetite," he added.

A US recession would put CEE currencies on the back foot, while a re-escalation of concerns about the health of the global banking system could lead to a sharp weakening of capital inflows to emerging markets, leaving CEE currencies heavily exposed, Farr noted.

Currencies have rebounded from sharp losses seen at the start of the week in the wake of Credit Suisse's takeover by Swiss rival UBS.

The Hungarian forint EURHUF= was up almost 1% at 384.05 per euro by 1047 GMT on Thursday. The Czech crown EURCZK= gained 0.15%.

"There was a decent boost overnight (after the Fed) but it is getting calmer now," a Prague-based FX trader said.

Noble Securities analysts wrote in a note that worse economic data or first-quarter corporate earnings could become "an argument for a 'cold shower'" for the zloty later.

The Polish zloty EURPLN= has trailed gains of main CEE movers the forint and crown this year, and was up a touch at 4.682 to the euro, holding roughly steady so far in 2023.

Reporting by Karol Badohal in Warsaw, Jason Hovet in Prague and Krisztina Than in Budapest; Editing by Nivedita Bhattacharjee

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