Forint down on Greek worries

At 314.23 to the euro early Monday, the forint moved between 313.28 and 315.55, a more than five-month low, after a three-week high at 308.48 last Tuesday intraday.

Over last week it gained 0.44% versus the euro, after losing 0.28% over the previous week.

Central European assets fell to multi-month lows across the board as investors dumped risk assets on fears Greece will default on debt and be forced out of the euro zone after failing to secure a new financing deal over the week-end.

However, the Hungarian currency pared losses by the end of the day versus the euro, and even strengthened against the dollar -- compared to late Sunday -- while the euro also worked off much of its week-end losses in dollar terms.

The impact of Greece has been muted on Hungarian currency and bond markets so far as trade and banking links between the two countries are scarce, and Hungaryʼs finances are much more stable than 5 or 10 years ago, Hungaryʼs economy minister said on Monday.

While expecting the risk-off sentiment to be the most visible in Poland and Hungary, KBC Bank also said in a note on Monday that "all in all the losses are likely to remain relatively contained."

Direction of money flows were well reflected in yield movements on Monday, with highest rated euro zone government paper yields, including on Bund, falling at about the same rate as euro area peripheral yields increased, but Hungarian long-term yields grew much less, attesting to investorsʼ perception that Hungarians could be bets with a more acceptable balance between risk and yield these days.

However, not everybody agrees. RBS expects central European currencies to weaken even as the euro underperforms, therefore it recommends going long USD against the HUF, PLN and RON for added boost. It sees the USD remaining bid on flight to quality while central European bonds, equities and currencies are set to struggle on rising uncertainty since Poland, Hungary and Romania lack sufficient risk premia, RBS said in a note. Central European currency risk looks underpriced in option markets, RBS added.

But it also reckoned that a significant and intense worsening in risk perception in the wake of Greek woes might take further rate cuts off the agenda in Hungary despite the clear commitment of the countryʼs central bank a week ago to lowering rates further. Should the forint weaken to the 325-330 range against the euro within a few days, the central bank would likely intervene, it added.

Investors also received as a sign of confidence the news on Monday that the European Investment Bank will lend €500m to Hungary.

The forint traded at 282.51 to the dollar, down from 279.60 late Friday, but up from 286.32 late Sunday. On Monday, it moved between 281.73 and 286.45, after a more than three-month low at 287.25 Sunday intraday.

It was quoted at 304.46 to the Swiss franc, down from 299.32 late Friday, but almost in line with 304.32 late Sunday. Its range on Monday was 300.67 to 304.97, after a five-month low at 305.19 Sunday intraday. 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.