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Forint recovers on interbank market

History

The forint was trading at 316.19 to the euro late Thursday on the interbank forex market, up from 317.83 late Wednesday. At 318.11 to the euro early Thursday, the forint moved between 315.90, a four-day high, and 318.44, after it fell to a new three-year low at 321.35 on Tuesday.

While the euro continued sliding in dollar terms, the Russian rouble's huge rise against major currencies following a stabilisation of oil prices after recent dives boosted the Hungarian currency as well as emerging market assets worldwide.

Analysts also mention the soothing effect of the Fed minutes out late Wednesday confirming no hurry to raise the policy rate in spite of mixed to strong US data.

The forint bounces off from levels around 320 against the euro as market sentiment improves somewhat, a Commerzbank trader said. The correction is not country-specific and larger than what has been seen in the Polish zloty since forint deterioration has also been bigger than the zloty's fall. A level at 316 to the euro may prove tough to break should the cross continue to come lower. Also, the forint could remain the most vulnerable currency in central Europe because of Hungary's still large external debt, the trader added.

A raised sale of longer-term Hungarian government paper on heavy oversubscription and falling yields on Thursday attested to the renewed appetite of the state to increase debt. The secondary market risk premium therefore narrowed further to first-rated sovereigns with rising yields, which could be counterproductive later if investors expectations for a rate cut by the National Bank of Hungary (NBH) and for an upgrade of Hungary by rating agencies later in the year from junk to investment grade prove unfounded, analysts add.

On Thursday, Barclays included Hungary in a list of emerging market economies where it expects an upgrade this year.

Central European currencies are oversold, said Bank of America Merrill Lynch on Thursday. Poland and Hungary are likely to benefit from a strong growth recovery in 2015 and 2016, it said. A substantial easy money policy program from the ECB should help both Poland and Hungary from a technical and macroeconomic perspective, it added.

However, fresh Hungarian industrial and retail trade data out on Thursday were rather mixed than promising. And, while underlying concerns about the euro, the price of oil and the Ukraine situation have a heightened effect on central Europe in general, Hungary suffers additional political risk, especially from its track record of authoritarianism, said William Jackson, senior emerging markets economist at Capital Economics in London, in a research note this week.

The forint traded at 267.80 to the dollar, up from 268.50 late Wednesday. On Thursday, it moved between 267.58 and 270.19, after a new more than twelve-year low at 270.75 on Wednesday.

It was quoted at 263.18 to the Swiss franc, up from 264.67 late Wednesday. Its range on Thursday was 263.18, a six-day high, to 265.11, after it hit another nearly three-year low at 267.36 on Tuesday.

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