Forint falls on interbank market

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The forint was trading at 305.45 to the euro late Friday on the interbank forex market, down from 304.09 late Thursday. At 303.98 to the euro early Friday, the forint moved between 303.72 and 307.37, close to its latest four-week low at 307.96 on Wednesday. It is down 0.06% from late last Friday after a loss of 0.73% over last week. It is up 3.67% from the end of last year, after it lost 6.12% last year, and 1.95% in 2013.

Central European government bonds eased on Friday and currencies fell as euro zone debt prices took a pause from their rally, and fresh data on consumer deflation in Poland and agricultural producer price deflation in Hungary, both deepening, refueled expectations for deeper rate cuts in the region.

Regional rate cut expectations were also supported by latest, dismal, US data on retail trade and inventories on Thursday, and on continuing producer price deflation and a fall in consumer sentiment on Friday, denting market certainty that the Fed could raise its base rate as early as June.

However, the contrast in the stance of the Fed and the ECB put further pressure on the euro, and the dollarʼs rise kept pushing the Hungarian currency down, too. After gaining 4% early this year, the forint has been hovering for weeks around 305 against the euro, a level the National Bank of Hungary (MNB) may consider too strong.

After a considerable increase of Hungaryʼs government bond yield spread versus German bunds over the past few weeks due mainly to falling German yields anticipating the ECBʼs QE, parallel to only a moderate increase in credit default swap (CDS) spreads, Hungarian yields could decline from current levels in the u%oming months, Erste said in a note on Friday.

The benchmark Hungarian sovereign 10-year yield was up 15 bps, or 4.25%, on the day Friday afternoon at 3.68% on the secondary market, while that of the German bund increased 1 bp, or 3.61%, to 0.258%.

The forint traded at 290.27 to the dollar, up from 285.92 late Thursday. On Friday, it moved between 286.00 and 292.18, a new 13-year through.

It was quoted at 288.73 to the Swiss franc, down from 285.16 late Thursday. Its range on Friday was 284.98 to 289.65, a four-day low. 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, it reached the highest at 281.07 on February 26.

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