Forint corrects up within range

Back to the textbook scenario temporarily confounded on Tuesday, the Hungarian currency on Wednesday gained versus both the dollar that dove inexorably on waning expectations for a US Fed rate hike still this year, and the euro which strengthened against the dollar, but is also restrained by hopes the European Central Bank could widen its quantitative easing rather sooner than later.

First-rated sovereign bond yields continued to fall in the secondary market as investors withdrew from shares in global markets. Risk avoidance pulled Hungarian yields further up, too, but the process also suggests a possible normalization of their risk premium attraction that apparently narrowed too much lately.

As illustrated by a three-month Treasury bills auction on Tuesday with increasing demand, decreased allotment compared to plan and still rising yield, the Hungarian government is in the midst of a precarious balancing act between trying to make its issues more attractive and keep financing costs low, analysts add.

The upside of the forint is limited by suspicions that too much strength would drive deflation deeper than the central bank could tolerate, and might trigger an unexpected rate cut. So the currency remained within its four-month old range mostly on the wrong side of 310 to the euro.

The forint traded at 271.03 to the dollar, up from 273.79 in final quotes on Tuesday. On Wednesday, it moved between 270.83, a nearly four-week high, and 273.68.

It was quoted at 284.60 to the Swiss franc, up from 285.63 late Tuesday. Its range on Wednesday was 284.18 to 285.69, after a nearly four-week high at 282.84 late on Tuesday, and a five-day low at 286.93 also on Tuesday intraday. 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.