Forint slips again on interbank market

While the euro fell against the dollar, the Hungarian currency lost out to the euro and even more to the dollar after a US Fed policymaker, Charles Evans who is known to be dovish, argued for rates to start rising early next year in a speech in Stockholm on Monday, but added the Fed could still look at a rate hike this coming June if the economy is strong enough.

US ten-year yields raced ahead, pulling up euro zone yields in their wake and cutting short the appeasement seen in bond markets late last week, while Hungarian yields corrected down which eroded their risk premium.

Locally, the forint was also under some pressure after J.P. Morgan reminded investors in a note on Monday that an upgrade to investment level of Hungaryʼs public debt by Fitch Ratings was unlikely. According to pre-announced schedule, Fitch is to assess Hungary on Friday after close of business.

J.P. Morganʼs reminder was underlined by fresh data on Hungaryʼs volatile public debt, but other data showing Hungaryʼs balance of payment with ever growing surplus still underpinned the currency.

Factors that may limit or further reverse earlier gains of the forint include a future rebound in the US economy, weaker growth in the euro zone and an uncertain outcome in crisis-stricken Greeceʼs talks with lenders, analysts add.

As long as international financial markets are in turmoil, Hungarian local-currency government bond yields will remain under pressure and the yield of the ten-year tenor may rise towards the 4% threshold, Erste Bank said in a note on Monday. If sentiment normalizes, Hungarian bond yields may move south and bottom out at 3.6%. Still, yields will likely start to slowly increase from the third quarter onwards due to looming monetary tightening in the US, although demand on the Hungarian primary market may not shrink, Erste added.

Another factor is Hungarian rate policy. Bank of America Merrill Lynch on Monday expected Hungary to cut its policy rate to 1.35% by end-2015 from the current 1.8% on inflation well below target and rising risks of second-round disinflationary impact of low commodity prices. Market consensus is that Hungaryʼs central bank should stop at 1.5%. BofAML did not rule out a temporary pause either, but said easing was to continue throughout the summer unless the global risk environment deteriorated, leading to sharper forint depreciation.

The forint traded at 272.42 to the dollar, down from 267.52 late Friday and 267.93 late Sunday. On Monday, it moved between 267.77 and 272.55, a five-day low, after a nearly three-month high at 267.21 on Friday intraday.

It was quoted at 295.18 to the Swiss franc, down from 292.08 late Friday and 292.71 late Sunday. Its range on Monday was 291.89 to 295.26, a for-day low after a one-week low at 296.50 last Thursday morning. 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.