Forint climbs up more on interbank market

At 314.16 to the euro early Monday, the forint moved between 313.11 and 314.52, after five-month lows on the wrong side of 318 in the middle of last week.

But over last week as a whole, the Hungarian currency gained 0.95% versus the euro, after losing 1.56% in the preceding week.

The forint continues to profit slightly while regional assets are buoyed by comments about last weekʼs "dovish tightening" of interest rates by the US Fed, which means the regionʼs assets might lose less appeal relative to US debt than previously thought. 

However, the risk premium in the benchmark 10-year Hungarian sovereignʼs yield narrowed on Monday over both the corresponding German and US yield, which augurs that further forint gains should be limited, if any.

As a result of the National Bank of Hungaryʼs (MNB) efforts to shepherd more of domestic banksʼ reserves into government paper, the yield on the 10-year Hungarian government bond fell to 3.28% by October 8 from 4.31 – this yearʼs highest - on June 15 on the secondary market. But the MNB has probably overshot the target, and the yield climbed back to 3.78% by the middle of last week as foreign investors found the sinking levels unattractive compared to the countryʼs stubborn junk grade at the major rating agencies, with the looming US tightening also in mind, analysts say.

Following the Fedʼs decision last Wednesday, the yield fell to 3.50% by Monday afternoon, but the trend points to a possible repetition of the backlash since autumn.

Meanwhile, this could be balanced in the short term by support from expected further European Central Bank policy easing, and caution by the National Bank of Hungary (MNB). In its latest policy decision last week, the MNB held its record-low base rate unchanged, and repeated talk on further unconventional easing measures, but refrained to deliver any, contrary to high expectations before its policy meeting.

Hungaryʼs government and the central bank probably want the forint to trade near 310 versus the euro in the next days in order to achieve the year-end debt reduction target set by EU rules, dealers said on Monday. It was a rate of about 310 to the euro with which the year-end level of state debt had been calculated in this yearʼs government budget.

The forint traded at 287.46 to the dollar, up from final quotes at 289.50 on Friday and 289.02 on Sunday. On Monday, it moved between 287.46, a five-day high, and 289.79, after a two-week low at 293.45 last week Thursday. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

It was quoted at 289.92 to the Swiss franc, up from 290.48 late Friday and 291.38 late Sunday. Its range on Monday was 289.81, a twelve-day high, to 291.77. 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.