Forint firms on interbank market

The Hungarian currency gained some ground versus the euro by late afternoon as the latter swiftly pared gains, then lost against the dollar after data from Germany showed an unexpected return of deflation in December. Parallel, the forint fell versus the dollar following initial gains early in the day.

The forint could be volatile in the coming weeks as Hungaryʼs government seems to be in dire need of money, after it cut back issues at the end of last year to keep public debt at a level in line with EU rules by the year-end cut-off date, analysts say.

The government sold on Monday HUF 49 bln of 7-week Treasury bills, HUF 9 bln billion more than planned, and HUF 24 bln more than at the last similar auction on December 9, in view of steeply rising demand, but the average yield leaped to 1.27% from 1.15% at the preceding auction, while price fell.

The auction reflected a probable outburst of pent-up demand from domestic banks after their purchases were held back by low offer late last year. If yields continue to rise despite rising local demand as banks mercilessly profit from the governmentʼs predicament, foreign investors might also be lured back after they have but deserted the Hungarian debt market since autumn in view of yields falling too low to their liking, which pressured the forint. Their return, in turn, could support the forint later, analysts add.

The forint traded at 291.84 to the dollar, down from final quotes at 290.54 on Friday and 290.59 on Sunday. On Monday, it moved between 288.66 and 291.98, a seventeen-day low. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

The forint was quoted at 290.22 to the Swiss franc, up from 290.59 late Friday and 290.67 late Sunday. Its range on Monday was 289.24, a five-day high, to 291.60. Since its crash to an all-time low at 378.49 to the franc on January 15, 2015, when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26, 2015.