Forint falls in euro, firm in dollar

Telco

The forint was trading at 313.94 to the euro late Tuesday on the interbank forex market, down from final quotes at 313.03 on Monday. At 313.04 to the euro early Tuesday, the forint moved between 312.73 and 314.60, a one-month low, after a four-day high at 310.92 late on Monday.

Domestic data on accelerating inflation and industrial output growth did not save the Hungarian currency from a plunge versus the euro as global investors covered euro shorts built before last Thursdayʼs disappointing decisions of the European Central Bank, and the euro resumed rising against the dollar. This helped the forint to firm from the dayʼs low versus the US currency.

Another set of Chinese data which showed its international trade shrank further in November, and weak commodity prices in their wake also increased caution towards emerging market assets, all the more as these suggested Central European central banks could continue to ease monetary policy.

Hungaryʼs slower-than-expected price growth in November may prompt the national Bank of Hungary (MNB) to revise its inflation forecasts downward next week, and also to ease monetary conditions further with additional unconventional measures, Citigroup said in a note on Tuesday. Tobacco tax increases may boost Januaryʼs headline inflation reading to 1.8% on the year versus Decemberʼs expected 1.1% and Novemberʼs 0.5% actual reading. But the house expects headline inflation to remain below the central bankʼs 3% target over next year, too.

Another factor pressuring the forint could have been a revelation by the government on Tuesday that it was still in talks with the European Commission on more than HUF 600 bln in European Union funding for the 2007-2013 budgetary period.

It warned that the "better part" of the talks on the funding could drag on into 2016, but would eventually clear the way for the transfer of the EU funds by next year, at the latest.

Under EU accounting rules, the funding can still be booked as revenue, even though it has not arrived, thus it will not impact the 2.4%-of-GDP general government target for this year, a government official said.

However, it means that Hungary can reach this yearʼs deficit target on paper only, analysts add.

On Monday, the National Economy Ministry said Hungaryʼs cashflow-based general government deficit, excluding local councils, reached 108.8% of the full-year target at the end of November, and was up 36% from a year earlier. The ministry said "disparate developments" related to European Union funding caused the government to substitute missing funds with transfers of more than HUF 500 bln so far this year.

It was only known until now that the EU suspended some funding between April and September because of problems with the selection process for projects.

The forint traded at 288.67 to the dollar, slightly up from final quotes at 288.95 on Monday. On Tuesday, it moved between 287.61 and 289.37, a five-day low, after a one-month high at 284.75 late last Thursday, and a third more than fifteen-year low within a month at 295.76 on November 27.

It was quoted at 290.40 to the Swiss franc, down from 288.77 late Monday. Its range on Tuesday was 288.10 to 290.95, after a four-day high at 286.45 Monday intraday, and a nearly three-week low at 289.40 last Friday intraday. 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.

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