Forint corrects up after plunge

History

The forint was trading at 314.20 to the euro late Thursday on the interbank forex market, up from final quotes at 314.49 on Wednesday. At 314.40 to the euro early Thursday, the forint moved between 313.56 and 314.69, after a nearly five-week low at 315.35 late Wednesday, and a one-week high at 308.95 late last Friday.

The less than 0.1% improvement of the Hungarian currency on Thursday versus the euro compares to a plunge of around 1.3% in the preceding three days on a torrent of comments from the National Bank of Hungary (MNB) flagging and touting additional non-conventional easing measures to prompt banks to increase corporate lending, complete with an acknowledgement that the central bank saw no need to worry about exchange rate stability risks.

In notes on Wednesday, Nomura and UniCredit pointed out the new set of lending incentives of the MNB seemed to ignore the fact that there was no demand in the economy.

MNB also said it wanted to see yields on government paper to sink.

But at a regular auction on Thursday, the government sold a third of twelve-month Treasury bills offered on falling demand from two weeks ago, with the average yield jumping.

After falling to record lows by end-summer, Hungarian yields tend to rise, reflecting discontent with return driven too low compared to Hungaryʼs junk-rated risk, by MNB incentives to shepherd domestic banks into sovereigns.

On the secondary market on Thursday, the-one year Hungarian government bond yield rose more than that on the corresponding German issue.

But Thursday was free from MNB comments, and news on general government deficit convalescing in October also helped the forint. With a rarely seen surplus in October due mainly to certain EU funds that arrived after a five-month suspension, Hungaryʼs cashflow-based general government deficit, excluding local councils, shrank to less than 92% of the annual target in the first ten months, after reaching almost 107% by the end of September.

The forint traded at 289.14 to the dollar, up from final quotes at 289.42 on Wednesday. On Thursday, it moved between 288.06 and 289.97, after an almost four-month low at 290.15 late Wednesday, and a one-week high at 280.05 last Friday.

It was quoted at 290.26 to the Swiss franc, up from 291.37 late Wednesday. Its range on Thursday was 289.27 to 291.48, after a more than tow-month low at 291.96 late Wednesday, and a more than two-week high at 283.59 last Friday. Since its crash to an all-time low at 378.49 to the franc 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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