Last-minute snags in Greek loan-for-reform talks ahead of another EU summit scheduled for Thursday evening kept investors on the edge.
While the euro remained fairly stable versus the dollar, the Hungarian currency fell against both in expectation for strong US personal income and spending data from May which was confirmed in the afternoon. Emerging Europe assets could not compete with
US stocks and Treasuries that attracted funds in the afternoon in anticipation that the health of the economy would now withstand the impact of a quasi-certain Fed rate hike later in the year.
The National Bank of Hungary (MNB) tried to talk the forint up, but in vain. Its chief economist told a press conference that the shift in language in Tuesdayʼs Monetary Council statement indicated that Hungaryʼs rate cut cycle is approaching “the end and the bottom. But in a fresh study central bank economists also argued that a weakening forint is generating much less inflation now than earlier expected.
Thus, despite the Fed hike looming close, rate cut expectations in Hungary are still strong as illustrated by an auction of longer-term government paper on Thursday. Three- and five year-paper saw yields falling compared to the previous auction, but the yield on the benchmark ten-year paper increased, and all drew declining oversubscription. Secondary market yields of Hungarian sovereigns also increased at the longer end of the curve from five-year and up. Short-term paper may draw more interest, traders said.
The forint traded at 278.83 to the dollar, down from 277.68 late Wednesday. On Thursday, it moved between 277.37 and 280.51, a seventeen-day low, after a four-day high at 272.20 Monday intraday.
It was quoted at 297.00 to the Swiss franc, slightly up from 297.17 late Wednesday. Its range on Thursday was 295.84 to 298.95, a four-day low, after a ten-day high at 295.29 Tuesday 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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