Which way Hungary's forint will go from its 5-yr strongest vs. EUR? - dealers

We believe remarks made by Finance Minister János Veres earlier today referred to this assumption. He said he considers this firming temporary. "It is due to international factors and I don't see that domestic fundamentals are the reason," he added.

Nigel Rendell, analyst at the Royal Bank of Canada, noted that Veres “did his best to try and limit the HUF gains, [..] but he had little success."The combination of the high benchmark rate, the unfavourable inflation outlook and the strong forint is “rather unhealthy" and the “unnatural nature of this strengthening" is also reflected by the fact that government securities yields do not really move parallel to the HUF, Kolba added.

Forint volatility could be limited after it sinks to 240 vs. the euro, but basically “prospects are for further strengthening", said another currency dealer speaking on condition of anonymity. The Budapest-based dealer of a global credit institution said “there is no man on Earth who could sit tight" in the current HUF appreciation, i.e. keep his long EUR/HUF positions opened at much higher levels, “especially when the Hungarian central bank is sending out such a hawkish message."

For the time being, major London punters are long HUF, but “times can change", he added. He believes that because of this and the high Hungarian benchmark rate and market positionings the HUF could correct back from around 240 only transitionally. “At 243-245 a growing number of people will want to buy forint," he projected, adding that the HUF's firming spree is also supported by the substantial appreciation gap between the forint and its regional peers.

Regarding the relation between the strength of the HUF and the competitiveness of the export sector he said “you should take a look at how the Slovakian koruna or Poland's zloty moved" (gained a lot vs. EUR) and the growth figures in those countries. “Exporters just need to learn what hedging is," he suggested a possible solution.