Forint in tight range on interbank market

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The forint was trading at 306.03 to the euro late Monday on the interbank forex market, down from 305.67 late Friday and 305.92 late Sunday. At 305.95 to the euro early Monday, the forint moved between 305.83 and 306.72, after touching a more than three-week low at 308.46 on Friday. The Hungarian currency still felt the pressure from the strong dollar after some recuperation late Friday when the US currency paired gains against the euro.

 Uncertainty around the ECB's intentions concerning quantitative easing, and ever shifting views on when the Fed will start raising its base rate next year, however, keep the forint in a fairly tight range. If the ECB moves early, and the forint strengthens as a result in euro terms, than the National Bank of Hungary (MNB) will have some leeway to start tightening next year. But if the Fed moves early, that could, in turn, force the MNB to also tighten earlier.

Meanwhile, expectations for more easing from MNB next year have not disappeared either, if headline inflation remains at a depressed level, and forex household loans are out of the way early next year.

Analysts also point to the vulnerability of the forint to possible contagion from the Russian rouble's slide because of investors' perceptions of close Hungarian-Russian cooperation in energy matters.

Market players only agree that Hungary's government needs a stronger forint than now on the last day of this year in order to achieve a public debt ratio acceptable in Brussels.

The forint traded at 248.91 to the dollar, down from 248.79 late Friday and 248.82 late Sunday. On Monday, it moved between 248.66 and 250.39, after falling to a third almost one-month low in as many days at 250.57 on Friday. It was quoted at 254.58 to the Swiss franc, down from 254.33 late Friday and 254.34 late Sunday. Its range on Monday was 254.31 to 255.09, after hitting a one-week low at 255.88 on Friday.

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