Hungarian central bank (NBH) Governor György Matolcsy’s announcements on Tuesday - smaller cuts, forward guidance ahead - triggered an immediate weakening of the forint, and the currency has suffered additional hits this morning that knocked it to a new one-month low against the euro (close to 297). From that level, however, the forint gradually recouped some of its losses, as leading European stock indices climbed close to new (all-time) highs and the US dollar has also depreciated. On top of that Economy Minister Varga revealed that the relief in the making for FX debtors may not be as drastic as feared. This and a messages delivered by OTP Chairman-CEO Sándor Csányi at a press conference helped OTP rise sharply on the bourse.
Although at first Economy MInister Mihály Varga’s comments on the planned FX debtor relief package sounded like bad news, both the forint and OTP gained. It turned out the cabinet would phase out only foreign currency home mortgages rather than all FX mortgages from the system, which would deliver a smaller blow to the banks. The HUF firmed gradually to 295.50 from around 297, in parallel with which OTP’s share price rose sharply on the Budapest Stock Exchange (BSE), whereas leading European stock indices are showing every growing gains (the DSX rose to over 8,400 points on the back of better-than-expected German PMI data).
Market adjusts to Matolcsy’s projection - 11:11
The FRA market has apparently adjusted to what Matolcsy projected as the end of the rate cut cycle yesterday (3.00-3.50% base rate). Whereas the FRA curve was pricing the bottom of the easing cycle at 3.75% before the Governor’s press conference, the latest figure is down at 3.3% already, i.e. in the middle of the range mentioned by Matolcsy.
HUF north of 296.50, new month low vs. euro - 10:42
The better-than-expected German PMI data (Manufacturing PMI at 5-month high of 50.3 in July vs. 48.6 in June) managed to give merely an extremely short-lived boost to the forint and the HUF was hit by another easing wave over the past 30 minutes or so, going north of 296.50 to the euro. The HUF is currently quoted at 224 vs. the USD and at around 239.30 against the Swiss franc.
Markit's preliminary composite Purchasing Managers' Index (PMI), measuring growth in both the manufacturing and services sector and covering more than two-thirds of the economy, also rose to 52.8 in July, its highest in five months, from 50.4 in June.
Since yesterday the forint has undeniably broke from the path its regional peers have been on (slight firming to the euro).
HUF north of 296 vs. EUR - 09:10
The forint has failed to bounce back from north of 296 against the euro yet, which means it stays at a new 1-month low. Against the USD it is quoted at around 224.30 and versus the Swiss franc it is practically motionless around 239.50.
Forint at 1-m low to euro - 08:45
The forint was pushed to moderately lower levels on Tuesday when it turned out the central bank will likely be aiming for slower monetary easing (likely 10bp steps) but deeper cuts, possibly down to a 3.0-3.5% base rate. It was also behind the HUF easing that Matolcsy’s implicitly said the NBH will give up inflation targeting by switching to a forward guidance approach. From around 294.50 the forint weakened temporarily to over 296 and on Wednesday morning the HUF kicked off the daily session at around 295.50/296.00.
As you can see on the chart below the forint bounced back towards stronger levels from the zone around 296. If the government eventually did not make a decision at its meeting today on what kind of relief it will provide to foreign currency mortgage holders and/or came up with some reassuring communication in this respect, the forint might just react the same way and firm some. Otherwise EUR/HUF may start to approach the 300 mark.
Approaching the end of the month we should take a look at how CEE currencies fared versus the euro in July. The chart below shows a minor underperformance by the forint with its 0.3% depreciation, whereas Poland’s zloty is the undisputed winner, as it has gained nearly 3% against the single European currency since the start of the month.
We see signs that the weakening trend of the USD is breaking on the EUR/USD cross because it breached the 1.32 resistance northbound, but it was not followed by further swift rise and the exchange rate is currently teetering on the rising trend line. Should the firming of the USD gain momentum, USD/HUF would go above 225 again from around 224 currently. The HUF is currently quoted at around 239.20 against the Swiss franc.
Eurozone PMI data due out this morning are to affect EUR/USD, whereas China’s PMI published earlier today did not cause much of a disturbance in global investor sentiment.
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