Following a short-lived week-end surge on disappointing US GDP and labour cost figures, the euro resumed its downward path versus the dollar, pressuring the Hungarian currency as well, on heavy selling in Athensʼ stock exchange which restarted trade after a five-week pause, and quasi certainty that the Fed would begin tightening before the year is out despite some lighter US data recently.
Late afternoon, another batch of US data on manufacturing expansion that slowed in July and on tepid consumer demand growth in June only mitigated the trend.
The forint was subdued also on domestic PMI data that showed Hungarian manufacturing stagnated in July in contrast to continuing regional and euro zone expansion.
Hungaryʼs government bond yield curve continued to flatten as short yields rose and long ones from five-year and up fell, due to expectations that the central bank will soon provide cheap hedging to local banks through its new long-term interest rate swap (IRS) facilities. But as incentives are aimed at resident investors, the trendʼs influence on the forintʼs exchange rate is diminishing.
Meanwhile, the looming US tightening cycle “has definitely not been priced in” on the Hungarian fixed income markets while non-resident government bond holdings remain massive despite falling by 16% from April to July, Erste Bank said in a note on Monday. If the Fed starts raising rates, the long end of the Hungarian yield curve will likely be hit as mostly non-residents dominate that segment, Erste added. Pressure on the bond market could spill over to the forint since the expected bond selloff would also imply additional forint oversupply. Therefore, if and when the Fed pulls the trigger, Hungarian bond and currency markets will likely be one of the targets, Erste Bank said.
The forint traded at 280.60 to the dollar, down from 279.67 in final quotes on Friday and 280.23 on Sunday. On Monday, it moved between 279.53 and 281.55, after a three-week high at 277.00 late Friday.
It was quoted at 290.05 to the Swiss franc, down from 289.52 late Friday and 289.78 late Sunday. Its range on Monday was 289.23 to 290.80, after a three-month high at 288.29 last Thursday 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.
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