Hungarian forint rises to highest since May on budget optimism

The currency posted its biggest monthly gain since May 2001 Tuesday after the government presented the 2007 budget to parliament. Prime Minister Ferenc Gyurcsány is raising taxes and cutting subsidies to trim the European Union's largest deficit. The plan includes a reserve to provide a buffer against overruns that caused Hungary to miss targets the past five years. “The government's got in place a fiscal package that over time will reduce the budget deficit quite considerably,” said Nigel Rendell, a currency strategist at Calyon, the investment- banking unit of Credit Agricole SA, in London. “The forint has got a bit more upside to it.” Against the euro, the forint rose to 259.23 at 5:13 p.m. in Budapest, from 260.36 late Tuesday. The Hungarian currency was also at 203.11 per dollar, from 203.92. The forint rose 4.6% against the single European currency in October. It may climb as high as 255 by the end of the year, Rendell said. The forint has strengthened even as political tension increased in the country. Protesters have been demanding the resignation of Gyurcsány, who admitted in September to lying about the health of the economy to win a second term. The most recent demonstrations degenerated into riots on the October 23 anniversary of Hungary's 1956 uprising. The day after, the forint rose against the euro. It has advanced from 271.08 since September 18, the day of the first street violence.

Yesterday's gains took the forint to its highest since an emerging-market sell-off hammered the currency in May, when it lost 7.3% against the euro. Concern that central banks in the US, euro region and Japan would all lift interest rates caused appetite for risky emerging-market securities to plunge. Interest-rate futures show traders' expectations for Federal Reserve, European Central Bank and Bank of Japan rate increases in the coming few months are limited. US rate futures indicate some chance of a rate cut by March and euro- region contracts due in June suggest two more rate boosts. “That's good news not just for the forint, but emerging market currencies in general,” said Rendell. Hungary's yields are the highest in Europe. The benchmark 10-year government bond yields 7.14%, compared with a 3.72% yield for Germany's 10-year note. The price of Hungary's 5.5% note was little changed yesterday, at 88.70. (Bloomberg)