Forint down in euro, up in dollar after ECB

The Hungarian currencyʼs fortune quickly changed after the euro soared as more stimulus from the ECB came in short of expectations. The ECB lowered its deposit rate to minus 0.3% from minus 0.2% after majority projections penciled in minus 0.4%. It extended the scope of its quantitative easing, and stretched its run to at least March 2017 from September 2016, but it left its monthly amount unchanged at EUR 60 bln, disappointing expectations for a rise to at least EUR 75 bln. The ECB reasoned that its projections for accelerating economic growth remained broadly unchanged compared to its September forecast, while it reduced its inflation forecast only slightly.

   Meanwhile, US Fed chief Janet Yellen put in a second day of noncommittal speeches, which also weighed on the dollar. She said she was "looking forward" to an interest rate hike, indicating optimism in the economy, but she noted that the labour market was still not at full strength. Ms Yellen did not indicate if she still expected a rate hike at the Fedʼs last remaining policy meeting this year ending on December 16, and reaffirmed her view that the timing of the first US rate hike was not as important as the path of subsequent hikes, which she said should be gradual.

In the whirlwind of the dayʼs events, the forint fell versus the euro, and gained against the dollar.

The forint also suffered versus the euro on perceptions that more non-conventional easing by the National Bank of Hungary (MNB) expected on December 15, which MNB all but promised last week, could now come with less cushion provided by the smaller than expected ECB accommodation.

The forint was also subdued versus the euro after Hungaryʼs government cut its offer of discount twelve-month Treasury bills by half on low demand in the morning ahead of the ECB decision, but even so it had to accept a yield rise of 4bps compared both to the previous auction and Wednesdayʼs secondary market benchmark, to 0.99%. The yield on the one-year Hungarian sovereign was up 5bps on the day to 1.10% by late afternoon on Sunday while longer-term yields also rose 1bp.

The forint traded at 287.36 to the dollar, sharply up from final quotes at 292.35 on Wednesday. On Thursday, it moved between 287.25, an almost one-month high, and 294.14, after a third more than fifteen-year low within a month at 295.76 late last Friday.

It was quoted at 286.56 to the Swiss franc, up from 287.04 late Wednesday. Its range on Thursday was 285.61 to 287.58, a six-day low, after a twelve-day high at 284.17 Tuesday 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.