Exciting week ahead for both the forint and the US dollar
Last week, data already showed that Hungarian construction output in January was 10.2% higher than in December, providing a glimmer of hope that a recovery might be on the horizon after the weakness of the past two years.
The dispute between the MNB and the government has been dominating the public discourse for a few weeks now, and last week's episode once again eroded the forint exchange rate. In several statements, the MNB has indicated that the proposed amendments to the central bank law could harm their independent functioning, while the cabinet has tried to reassure markets that it is not preparing to intervene significantly with the planned changes.
This, coupled with the news that the European Parliament may take the European Commission to court over the lifting of the ban on Hungarian cohesion funding, has severely eroded the forint exchange rate. One of the key questions is the direction this debate will take, as a more negative move from the government or the central bank could push the forint back above 400. In this respect, the MNB's recent signals could be important, as the forint finally managed to move away from the 400 level by the second half of the week, mainly due to the MNB's communication on the interest rate path.
At the international level, the most important thing for markets was that the US inflation data came as a bitter surprise: prices rose more than expected in February and inflation accelerated. Although core inflation fell, it still came in above expectations, so the Federal Reserve's rate cut could be delayed, while investors were already hoping for an early cut. And in Europe, more negative news was a decline in industrial production in the EU in January 2024 on both a monthly and annual basis.
What will happen this week?
On Monday, the MNB will publish data on domestic payment service providers' infrastructure, payment traffic, payment abuse and quarterly payment revenue. The February balance of payments will also be published.
At the international level, the first major report comes from China, where we find out how the world's second-largest economy has fared in terms of retail sales, industrial production, and unemployment. Then, at 11am, February inflation data from Eurostat for the EU and the euro area, as well as a report on the external trade balance. In the evening, there will be a report from the US on the housing market, followed at 3pm by the NAHB report.
On Tuesday, we will also be watching the MNB as they present the January results for international reserves and foreign exchange liquidity. For instance, we can find out the short-term, frontloaded operations in the first month of the year.
In the early hours of the morning, Japan will be the focus of attention as the Bank of Japan's interest rate decision is due, although the analyst consensus is that no action will be taken. At 11am, the ZEW will publish its German economic sentiment index, which will be increasingly watched by investors worried about the EU's largest economy, and from the US, the number of building permits issued in February will be reported.
On Wednesday, the day will start with the UK's February inflation data in the morning, but markets will turn their attention to the United States, where the Federal Reserve will announce its interest rate decision in the evening, followed by the usual press conference with Jerome Powell, the central bank's chairman.
On Thursday, Japan will again start the day with the February trade balance data, followed by the Purchasing Managers' Index (PMI) data from Europe in the morning: as usual, the French will start the day, followed by Germany, the UK and later on some smaller EU countries. At 1pm, we'll be watching London, when the Bank of England will present its latest interest rate decision. Also in the early afternoon from the US will be the Philadelphia Fed index, followed by the US March PMI data.
On Friday, the first important data will come again from Japan, with statistics on inflation in February. In Europe, the UK retail sales data for February is worth watching, followed by the IFO business sentiment index from Germany in the morning.
Cover photo: Getty Images
