Economy 2 January 2015, 9:41pm

As euro stimulus looms large, Hungary forint weak as water

Portfolio

Two days into the new year, financial market sentiment is fragile worldwide not only as a result of to weaker-than-expected eurozone macro data, but also due to European Central Bank President Mario Draghi's hints at an imminent bond-buying programme. The Hungarian forint fell victim to the general pessimism; the EUR/HUF rate climbed in excess of 318, whilst the forint slid to an even-lower low in many years vs. the US dollar. At the same time, it should be taken into consideration that banks are closed today - hence, liquidity is limited and volatility could be more intense.

8:58 p.m. Tension eased

By the evening hours, the forint has managed to consolidate a little vs. the euro, the pair is currently trading around 318. In contrast, the strength of the US dollar held out throughout the day, with USD/HUF quotes now above 265.

4:50 p.m. USD/HUF peaks above 265

The Hungarian forint continued to lose value in the afternoon despite positive global signs such as European stock markets sighing a breath of relief from seller pressure, barely any movement in the major US stock indices, and a slight recovery for the euro from a 4.5-year low vs. the US dollar. At one point, EUR/HUF quotes passed the 319 mark, whereas the USD/HUF paid rose above 265.2. In other words, the value of the USD exceeded that of the Swiss franc, the latter trading at 265.1 vs. the forint.

11:00 a.m. USD trades near 265 vs. forint

In an interview with German business daily Handelsblatt, President Mario Draghi discussed how the European Central Bank was making technical preparations for a bond-buying programme that the market has seen coming for quite some time. He noted that the threat of eurozone deflation was significantly greater than it had been six months earlier. Plans for quantitative easing need to take the latter (persistently low inflation, coupled with a deflation threat) into consideration, Draghi said. The statement must have played a role in the negative sentiment that has washed over global financial markets on Friday. To make matters worse, several unfavourable macro data have been released for the eurozone today. As the net result of all these negative factors, the Hungarian forint is getting pummeled incessantly, with the EUR/HUF, USD/HUF and CHF/HUF pairs trading around 319, 264.5 and over 265, respectively.

9:10 a.m. Forint gets pummeled

Yesterday's small-scale gains for the forint were eroded by more significant weakening on Friday morning. The EUR/HUF rate swung above 317; at the same time, the forint hit its lowest vs. the US dollar in many years at 263. Currency weakening was prevalent throughout the region.

In a poll conducted by Portfolio.hu recently, analysts reached the consensus that whilst no dramatic events are expected in the forint market in 2015, investors must brace for the possibility of a new historic low for the forint at some point this year.