Economy 22 February 2016, 3:36pm

Hungary forint jumps to 9-month high

Portfolio

Amidst clearly improved investor sentiment and increased risk appetite in the world's leading stock markets, developed currency markets are rather displaying signs of risk aversion related to fears of Britain's potential EU exit and the impact it would have on the EU. As a result, both the euro and the British pound have suffered losses in relation to the US dollar on Monday, while the latter's gains vs. the Japanese yen were barely noticeable. The CEE region's currencies have responded to this environment with swift firming, including the Hungarian forint which is currently at its strongest vs. the euro in 8 months.

3:21 p.m. HUF at 9-month peak

Another wave of forint appreciation has been apparent in the past 30 minutes, with the EUR/HUF rate briefly plunging as low as 307, a new 9-month peak for the Hungarian currency. Meanwhile, the US dollar is wildly gaining in relation to the euro as well as to the British pound, probably due to fears of the possibility of a British EU exit (and its impacts on the unity of the EU as a whole) which would be equally unpleasant for British assets and the euro. This is clearly reflected by the fact that the EUR/GBP rate has been stable all day long, while the GBP/USD rate plunged 2% to 1.4070 in a rarely witnessed intraday movement which at the same time means a 7-year low for the British currency. Simultaneously, the EUR/USD pair plunged straight through the 200-day moving average (1.1060) as though that highly important technical support level had not even existed. The pair is currently trading very close to 1.10.

11:11 a.m. Hungary strongest in 6 months

The past 20 minutes have seen a bout of forint firming (in the absence of any specific news/announcements that would warrant the movement), with EUR/HUF quotes plunging below the critically important technical support level of 308. As a result, the Hungarian currency returned to strong levels that have not been witnessed since early August. Meanwhile, the euro remains under the weather vs. the US dollar, with the EUR/USD rate down all the way to the 200-day moving average of 1.1060. The British pound is likewise under massive seller pressure in response to the Brexit threat. The sterling has lost 1.4% so far since Friday evening, the greatest overnight loss for the British currency in 11 months.

8:59 a.m. Forint near 6-month peak, British pound under pressure

The Hungarian forint has been firming in a spectacular fashion in spite of increasingly fragile investor sentiment worldwide, repeatedly testing the critical EUR/HUF zone around 308. This morning, the pair is once again trading around 308.5; that is, the forint is opening near its best in 6 months. As the second chart shows, 308 is a highly critical level; the past few months have seen many breakthrough attempts, which have repeatedly failed. Should the EUR/HUF rate break through this support level (and go below 307, too), the resulting mass-scale re-evaluation of investor portfolios is not unlikely to trigger another wave of forint appreciation.

The forint is not the only emerging currency in to have witnessed moderate firming in recent days; its peers have displayed a similar trend. Considering the past 1 month, the forint does not at all stand out in terms of its performance; there is room for improvement.

Meanwhile, the euro is once again testing the 200-day moving average vs. the US dollar around 1.1070; a downward breakthrough would clear the way for further dollar strengthening. The USD/HUF rate is currently around 278.

As a result of the EU summit on Friday night (acceptance of British demands, as a result of which Prime Minister David Cameron has pledged to campaign in favour of staying in the EU ahead of the referendum on 23rd June, contrary to London Mayor Boris Johnson) - or, to be more specific, in the wake of Johnson's surprising announcement), the British pound plunged to a 3-week low vs. the US dollar in the small hours on Monday, at 1.42. No major change is visible in the EUR/GBP rate, however, which is stable around 0.78.