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Forint corrects down on interbank market

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The forint was trading at 308.96 to the euro late Tuesday on the interbank forex market, down from 308.02 late Monday. At 307.79 to the euro early Tuesday, the forint moved between 307.34 and 310.77, a one-week low. It reached a near three-month high at 303.76 last Friday.

At a regular auction on Tuesday, the Hungarian government sold only as much of three-month Treasury bills as planned with yields unchanged from the previous auction, amid thin oversubscription.

This reflected the changing trend as the Hungarian currency weakened against the euro, while concerns about whether Greece can reach agreement with its creditors affected emerging market currencies in Europe.

That overshadowed recent optimism over the prospect of the ECB's bond-buying stimulus program, which starts next month.

The forint is especially vulnerable after it hit the strong end of a range against the euro well-defined since early last year around 304, at the week-end, Societe Generale said in a note on Tuesday, recommending to go short on the Hungarian currency, which has gained 4% since the ECB's program was announced last month.

The forint is also risky because the Hungarian authorities have no incentive to support the currency as Hungarian banks, under a government programme, are already converting foreign currency loans at a pre-set level that is very close to the forint's current level, SocGen said.

The Hungarian forint weakens as investor worries mount over Greece, Commerzbank also said on Tuesday. The weakening is in line with the softening trend seen elsewhere among central European currencies.

But the forint is more sensitive to negative news than positive ones, reflected by its inability to hang on to the slight gains on Monday after Hungarys prime minister announced a cut next year to the bank-sector's special tax.

Hungary's January headline inflation rate will likely have dropped further below zero, a poll by Dow Jones Newswires of ten commercial bank economists showed on Tuesday. They forecast January CPI, due on Wednesday, at minus 1.1% on the year from minus 0.9% in December on further falls in fuel and food prices. Disinflation and recent central banker comments underpin expectations for a potential rate cut by Hungary's central bank in March.

The forint traded at 272.91 to the dollar, down from 271.99 late Monday. On Tuesday, it moved between 271.30 and 275.45, a ten-day low. It reached a one-month high at 265.81 last Thursday.

It was quoted at 295.10 to the Swiss franc, down from 294.45 late Monday. Its range on Tuesday was 293.65 to 297.48, a nine-day low. Last Friday, at 287.52, it reached the highest since its crash to an all-time low at 378.49 on January 15, when the Swiss central bank scrapped its cap of 1.20 to the euro.

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