Economy 23 July 2013, 2:03pm

Hungary forint does not react to in line rate cut

Portfolio

The exchange rate of Hungary’s forint has not shifted much versus the euro since Monday afternoon. It is also true, however, that fluctuations abroad were also muted in the main currency crosses as summer trading is in a lull. And there are no key foreign macro releases in today’s pipeline that would “disturb" the markets. In Hungary, though, all eyes are on the central bank’s (NBH) rate meeting and the press conference that will follow, as it will be the first such event chaired by NBH Governor Matolcsy since his appointment, with the markets awaiting guidance on future rate moves.

No reaction to rate cut - 14:03

Hungary’s forint has not responded meaningfully to the in line base rate reduction by the central bank (NBH). It remains motionless at 295 to the euro, at 223.80 against the USD and around 238 to the Swiss franc on the interbank market.

HUF eases to 295 vs. EUR before rate meeting - 12:18

Hungary’s forint eased moderately versus the euro in the morning session to 295 from 294. The weakening trend of the US dollar against key currencies is apparently petering out, as a result of which the forint depreciated to the USD to around 223.50 from 222.50 in the morning. The HUF was quoted at around 238.30 to the CHF shortly after noon.

Forint at 294 ahead of rate decision - 08:47

The US dollar has been in a moderate easing trend versus key currencies since Federal Reserve Chairman Ben Bernanke’s testimony before Congress last week. The Fed’s asset purchase programme is not to come to a sudden end, as the U.S. central bank is rather showing a flexible approach which induced a gradual closing of USD long positions. As a result EUR/USD is around 1.32 and USD/JPY is hovering south of 100 again. Meanwhile, stock market sentiment is buoyant, all-time highs on U.S. bourses are broken one day after another. And today morning the cheerful mood was further increase by China’s promise of no hard landing of the giant Asian economy.

Amidst this strong risk appetite and the weakness of the USD emerging market currencies, including Hungary’s forint, have been given a boost which allowed the HUF to firm to 294 today from above 296 on Friday. If after an expected 25-basis-point rate cut (to 4.00%) NBH Governor Matolcsy makes remarks to cool off rate cut expectations HUF appreciation could gain new impetus. Due to uncertainties surrounding the government’s plan to provide further assistance to FX debtors (about which we may learn more details on Wednesday), the impact of the central bank’s rate guidance on the forint may be limited, though.

Due to the dollar’s weakening and the forint’s strengthening USD/HUF is back in a range between 222 and 223, while CHF/HUF is hovering around 238.00/50 on the interbank market.

Besides the central bank’s policy meeting and Matolcsy’s subsequent press conference (at 15:00 CET) we should also keep an eye on the Government Debt Management Agency’s (ÁKK) auction of 3-month discount T-bills today.