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Forint firms on interbank market

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The forint was trading at 311.56 to the euro late Wednesday on the interbank forex market, up from final quotes at 312.39 on Tuesday. At 312.65 to the euro early Wednesday, the forint moved between 311.28, a five-day high, and 312.84, after a more than five-week low at 315.80 late last Friday.

After hitting serious lows at the end of last week, the Hungarian currency continued to recover on firm expectations of more ECB easing to come in December despite a speech by ECB President Marion Draghi in London in which he avoided monetary policy issues, and on regional news on pro-market political appointments in the new Polish and Romanian governments that helped appease uncertainties in the last two weeks.

In Hungary, fresh data on farm gate prices rising in September the first time since June, 2013, firmed market view that the National Bank of Hungary (MNB) could struggle to keep its base rate at the current record low level at least until end-2017 as it suggested in its latest guidance.

Annual headline inflation in Hungary came in at a higher-than-expected 0.1% in October on the previous day, Tuesday, despite a very low base a year ago. September figure was a negative 0.4%. Annual core inflation accelerated to 1.5% from 1.3% in September. Analysts pencil in 1.2-1.5% annual headline inflation for December.

The quicker-than-expected return of consumer price inflation with deepening producer price deflation up to September according to available data in the background reflects rather short supplies than increasing demand, but if sustained, it might bar the route to further easing, and even force the central bank to tighten earlier than thought, analysts say.

Government measures, some of them announced on Wednesday, to accelerate the uptake of EU funds could have also supported the forint.

However, pressure on the forint in the longer term is also on the cards if money market rates fall below the central bankʼs benchmark interest rate. That is a possibility if Hungaryʼs central bank takes yet more unconventional steps to boost lending, if interest rates in the US start to rise and if inflation in Hungary accelerates, analysts add.

The forint traded 290.40 at to the dollar, up from final quotes at 291.31 on Tuesday. On Wednesday, it moved between 289.61, a five-day high, and 291,46, after a more than fifteen-year low at 294.40 last Friday intraday.

It was quoted at 289.24 to the Swiss franc, up from 289.61 late Tuesday. Its range on Wednesday was 288.52, a one-week high, to 290.21, after a more than tow-month low at 292.71 last Friday 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.

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