The recent sell-off in central and eastern European (CEE) currencies might have significant negative implications for the euro, warns Hans Redeker, chief forex strategist at BNP Paribas.

He points out that credit spreads in countries such as Russia and Turkey have widened in spite of capital injections into the banking industry by Western governments.

"The reason sovereign spreads are rising has its origin in private sector indebtedness and the structure of the liability side of balance sheets," Mr Redeker explains. "Banks and corporates in emerging markets have not only funded in local currencies, but an increasing share of liabilities are foreign currency-denominated.

"Local currency is now being changed into hard currency at any cost to cover hard currency funding needs. Local currency weakness is the result."

Meanwhile, the lack of adequate funding will leave CEE economies, including Russia and Turkey, exposed to a significant slowdown.

"Of concern from a European perspective is that this slowdown is taking place in the eurozone's backyard, suggesting the region's exporters face tough times. This will weaken the euro from a cyclical perspective.

"The more CEE currencies weaken and CDS spreads widen the more pressure the euro will face. The risks to the euro might be greater than thought and CEE CDS spreads must be on traders' 'to watch' list."