Hungary under the shadow of the S&P Global rating review this week, the forint also vulnerable

What happened last week?

Last week, stronger-than-expected US inflation data around the world was being digested, which is expected to prompt the Federal Reserve to be cautious and delay its rate cuts. This has also put pressure on yields and exchange rates, continuing a trend that started in the second half of the previous week. The forint also weakened further as a result, even touching the 396 level against the euro on Friday when Israel launched another attack on Iran.

EUR/HUF

Source: Portfolio-Teletrader Kft.

But it is not only the forint that has suffered from the change in the US inflation outlook: the Japanese yen, previously a global safe haven currency, has weakened to a 34-year low against the dollar.

USD/JPY

Source: Portfolio-Teletrader Kft.

What can we expect this week?

The week ahead will be full of key Hungarian macroeconomic data and events. On Tuesday afternoon, the National Bank of Hungary (MNB) will present its latest interest rate decision, with the key question being how much the Hungarian central bank will be held back by the sharp weakening of the forint in recent months after the previous 75-point cut. Even more exciting could be the press conference, where hints on the future stance of Hungarian monetary policy could be given.

On Wednesday, the Hungarian Central Statistical Office (KSH) will publish fresh data on earnings, giving us an insight into the labour market and wage levels. On Thursday, the MNB will also publish the preliminary statistical balance sheet of credit institutions for March, which will give an important picture of the health and stability of the country's financial sector.

Friday will be a particularly busy day: in the morning, KSH will publish fresh data on employment and unemployment. The question is whether the recent rise in the unemployment rate will continue or reverse. Also still to come are the March vital events statistics from the office.

In addition, the MNB's final quarterly housing price index last year and the S&P Global Ratings credit rating review will also be highlights. From a Hungarian perspective, S&P's rating is also key because they currently have the worst rating of Hungary among the big three credit rating agencies. The BBB minus rating is just one notch above the investment grade.

Although they assigned a stable outlook to this last year, their latest emerging market assessment significantly downgraded their expectations for Hungarian growth. This may have been an indication that the stable outlook could be downgraded to negative.

Also on the international scene, a number of important economic data releases and events are expected in the coming week, which could have an impact on global markets and investor sentiment, as well as on currency markets.

In the US, the release of preliminary GDP data and the number of jobless claims will be the most important weekly data releases, as these data can provide guidance on the performance of the US economy and the state of the job market. If the momentum continues in the first quarter as it has so far, it could put further pressure on the Federal Reserve. The US economy grew 3.4% in the last quarter of 2023, with analyst consensus for the first quarter of this year pointing to a 2.3% expansion.

The Fed may also be in a difficult position, as PCE inflation data will be released on Friday, and new personal income statistics will also arrive on Friday. These data will also have a direct impact on the Fed's monetary policy and will influence inflation expectations, which could have an impact on the currency market.

The release of the IFO business sentiment index in Germany and consumer confidence data in the EU may also be important for understanding global economic sentiment.

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