Hungary's forint poised to snap longest winning run since 2005

Analysis

Hungary's forint is set to drop this week, snapping its longest weekly winning run since August 2005, as investors judge its recent gains aren't justified by the outlook for interest rates.

The forint rose by the most in 5 1/2 years in October as the central bank lifted rates for a fifth meeting, and indicated borrowing costs may need to rise further to contain inflation. This pushed the forint to a level that is too high, given the central bank may only lift rates by another quarter point, said Tania Kotsos, senior emerging markets at RBC Capital Markets. “The forint's move to the recent highs has been very quick,” said Kotsos, who is based in London. The advance is excessive because “the market is now pricing in only one more rate hike from the central bank.” Against the euro, the forint fell to 261.22 at 11:46 a.m. in Budapest from 260.15 yesterday, and 260.14 on November 3. It may decline to 263 within one month, Kotsos said. The forint is the second best performing currency versus the euro in the past month, after the South African rand. The Budapest-based central bank last month raised Hungary's benchmark rate to 8%, keeping Hungarian bonds the highest yielding in the European Union. (Bloomberg)

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