Forint mixed on interbank market

The Hungarian currency gained versus the euro for a fourth day, but its momentum slowed to a trickle. Meanwhile, in line with the common currency, it continued to erode against the dollar, reflecting investorsʼ wariness and efforts to fine-tune right ahead of the US Fedʼs next guidance due later in the day.

Emerging markets have been favored by investors looking for yield but their edge could erode if the Fed indicates an intention to raise its policy rate, which markets deem plausible. No move on rates is expected from the Fed now, so attention will be paid to whether the Fed signals September or December as the most likely date for its long-awaited lift-off.

Since early last year, the National Bank of Hungary (MNB) has been using several tools, with more to come later this year, to shepherd local banks into longer-dated Hungarian government paper in order to cushion the market and the forint from external shocks. Local demand has more or less made up for overseas investorsʼ dumping their shorter-dated Hungarian local-currency government bond holdings in anticipation of a Fed hike. They also responded to MNB policy that also included a renewed series of rate cuts that ended only last week.

However, as a result of foreigners still holding a large share of Hungarian government bonds, any major external event may trigger more forint volatility, especially as the headline inflation is set to accelerate in Hungary, with real yields turning repellent in the coming months. Contrary to the central bankʼs intentions, this could dent local banks appetite for Hungarian sovereigns, making it difficult to counterbalance the loss of foreign interest, analysts add.

The forint traded at 280.41 to the dollar, down from 279.68 in final quotes on Tuesday. On Wednesday, it moved between 278.98 and 280.90, after a two-week high at 277.68 late Monday, and a four-day low at 284.96 Friday intraday.

It was quoted at 290.84 to the Swiss franc, down from 290.61 late Tuesday. Its range on Wednesday was 290.31 to 291.77, after a two-and-a-half-month high at 289.09 Monday afternoon and a four-day low at 296.35 last Friday intraday. Since its crash to an all-time low at 378.49 on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26.