After the 20th August bank holiday, the Hungarian forint had a bad start on Thursday morning despite overall positive global sentiment. The currency weakened almost to 315 vs. the euro in continuation of moderate losses on Wednesday, its lowest in more than a week. As the release of Fed minutes last night gave an added boost to the US dollar, the USD/HUF rate is edging towards a peak last witnessed a year-and-a-half ago. Another warning sign is the the UK gearing up for a rate hike, as well as the fact that the forint is almost at its weakest vs. the Swiss franc.
Despite general optimism worldwide as US stock markets are climbing to new peaks almost daily, the Hungarian forint continued to languish and failed to muster up strength on Thursday morning - in fact, it even weakened further. As a result, the EUR/HUF rate is edging near 315, the Hungarian currency's weakest in a week-and-a-half.
Among the emerging currencies, the Turkish lira was the only one to lose value parallel with the Hungarian forint on Wednesday; the rest of the group was seen moving sideways. Thursday morning has seen no marked change in any of the emerging market currencies vs. the euro.
The unexpected hawkish tone of the Fed minutes released on Wednesday is bad news for emerging markets, as it is pointing to a relatively early start of a rate hike cycle in the US. The news has caused a surge in US bond yields and boosted the US dollar - an environment that erodes the appeal of emerging markets used to extremely cheap financing (low developed market interest rates). To make matters worse, the latest Bank of England rate decision minutes were also released yesterday, revealing that two of the rate setters already voted for a rate hike - although this gave only a temporary boost to the sterling (vs. the US dollar).
At 1.3250, the US dollar has jumped to a 11-month peak vs. the euro, which, combined with the forint's weakness, has resulted in a USD/HUF rate once again nearing 238. Two weeks ago, the forint was seen recovering from a similarly weak level; should it the be unable to achieve the same feat, the Hungarian currency could pretty quickly end up at a new 1.5-year low.
In relation to the Swiss franc, the Hungarian forint has once again weakened to 260, only 1.5 units below what would be the currency's lowest in 2.5 years.
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