Forint fairly stable on interbank market

The Hungarian currency slightly fell versus the euro and ticked up against the dollar for most of the day with the help of the common currency that continued to correct up in dollar terms after second-reading data on a much smaller-than-expected slowdown in US GDP growth in the third quarter, and larger-than-expected inflation pressure only confirmed certainty in a US rate hike in December, an outlook that has already driven the euro down about 0.9% to seven-year lows against the dollar in the previous two trading days.

The forint only succumbed to global pressure late in the afternoon as the euro pared gains against the dollar.

In its latest CEEMEA research note on Tuesday, Goldman Sachs expected a smaller slowdown in Hungaryʼs economic performance next year and beyond than most analysts do, but joined the pessimists who see the forintʼs rate reaching 325 to the euro in less than a year.

Hungaryʼs central bank is likely to tolerate the forintʼs weakness better than it had earlier, and is seen taking additional steps to reinforce highly accommodative domestic financial conditions, Goldman Sachs added.

The region could see rising long yields partly as a result of a US interest rate hike, however the National Bank of Hungaryʼs (MNB) goal is to drive the costs of financing further down with policy instruments including long-term interest rate swaps and shifting liquidity from the MNB deposits into the bond market, the house said.

In addition, a decline in yields could be supported by a potential sovereign rating upgrade back to investment level, a possibility in 2016, Goldman Sachs added.

The dwindling interest rate premium as the US Fed starts tightening, coupled with a Hungarian central bankʼs stance could result in a forint that grinds gradually weaker against the euro, rather than sell off rapidly, the report said. Goldman Sachs sees the rate falling to 315 to the euro in less than three months, then further on to 322 over the next half year, and finally to 325 on a 12-month horizon.

The forint traded at 293.45 to the dollar, slightly down from final quotes at 293.21 on Monday. On Tuesday, it moved between 292.39 and 293.65, after a low of 294.37 late Monday, the worst since November 6, when it tumbled to a more than fifteen year low at 294.40. Last Thursday it reached a ten-day high at 287.97.

It was quoted at 288.45 to the Swiss franc, down from 287.90 late Monday. Its range on Tuesday was 287.51 to 288.74, a six-day low. 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.