Forint further down on interbank market

Cutting short a slight recovery late Monday, the Hungarian currency resumed falling in mid-morning when euro area composite PMI data confirmed weakness in the euro area and underlined the need of further easing by the ECB.

In Hungary, fresh data in the last two days on slowing factory output and rising unemployment have already pointed to the drag from the euro zone's malaise and the crisis in Russia, which falling oil prices, increasing the danger of continuing deflation, did not offset.

The unstoppable fall of the euro and the Russian rouble added to the forint's woes on Tuesday, too.

Commerzbank expects forint volatility to remain high in the coming months. Further weakening is possible because Hungarian growth has surprised strongly to the upside over 2014 but a worsening of euro area economic prospects could weigh on Hungary heavily.

Also, the Hungarian central bank has kept monetary policy on hold, but the increasing probability of ECB sovereign bond purchases will change rate expectations for Hungary more than for other countries, Commerzbank said in a note on Tuesday.

As opposed to Monday when an ad-hoc issue of ten-week discount liquidity bills with demand more than twice the unusually high offer helped stem the slide of the forint, a regular three-month discount Treasury bills auction on Tuesday with an almost three-times bid-cover ratio could not repeat the trick, as it rather confirmed again the government's willingness to replenish liquidity and raise public debt at sharply higher costs. The offer was raised by one-third to HUF 80 bln, but in spite the high demand average yield shot up 31bps compared to the last issue in 2014 to 1.84%, while the price discount deepened to 99.54% from 99.61%.

Issues were limited at the end of last year, also keeping the forint in check, in order to doctor down Hungary's public debt-to-GDP ratio by the cut-off date of December 31.

The forint traded at 267.62 to the dollar, down from 266.01 late Monday. On Tuesday, it moved between 265.26, a four-day high early in the morning, and 268.85, a new more than twelve-year low later in the day.

It was quoted at 265.63 to the Swiss franc, down from 264.62 late Monday. Its range on Tuesday was 264.09 to 266.07, after it hit a nearly three-year low at 266.72 on Monday.