The euro falling to a nine-year low against the dollar, and the weakening Russian rouble dragged down the Hungarian currency along with other emerging market assets.
In addition to the stellar strengthening of the dollar, renewed worries over Russia and negative expectations over China are also weighing on the forint, Commerzbank said in a note on Monday. A test of its historic low of 324 to the euro in January 2012 is still in the cards. No major correction is to come in the Hungarian forint’s exchange rate as long as sentiment remains this negative, Commerzbank said.
Further forint easing is still possible as weak manufacturing figures, coupled with loose monetary policy in the euro zone and in Central Europe’s biggest economy, Poland, feed expectations for rate cuts by the National Bank of Hungary (MNB).
Poland should cut its policy rate by 100 basis points to 1% because the economy is likely to slow and the zloty currency may strengthen, weighing on growth prospects, Polish rate-setter Andrzej Bratkowski said on Monday.
The forint only recuperated to early morning levels — still down on year-end — after an ad-hoc issue of ten-week discount liquidity bills saw demand more than twice the unusually high offer.
But sharply rising yields — compared to the three-month secondary market benchmark — also suggested that with the December 31 fixing used by the European Commission to size up Hungary’s public debt now over, the government is eager to replenish liquidity and raise public debt even at higher prices that compensate exchange rate risks for non-resident investors, after it has limited issues in the last few months to ensure the reduction of state debt by year-end.
The forint traded at 266.65 to the dollar, down from 264.95 late Friday and 266.48 late Sunday. On Monday, it moved between 265.85 and 268.39, a new more than twelve-year low. It was quoted at 264.91 to the Swiss franc, down from 264.45 late Friday, but up from 265.05 late Sunday. Its range on Monday was 264.39 to 266.62, a nearly three-year low.
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