Forint down on interbank market
The forint was trading at 304.69 to the euro late Monday on the interbank forex market, down from 303.03 late Friday and 302.92 late Sunday. At 302.90 to the euro early Monday, the forint moved between 302.80 and 304.72, a four-day low. At 301.96 Friday intraday, it hit a second nine-month high within two days. Over last week it gained 0.70pc from late after easing 0.21pc within the previous week.
Central European currencies eased on Monday, two days before a meeting of the Polish central bank that is expected to launch a new round of monetary easing in the region, although expectations for large rate cuts have been trimmed recently.
The current strength of the Hungarian forint versus the euro is not sustainable especially given recently emerged rate-cut expectations, CIB Bank said in a note on Monday.
Goldman Sachs is also long-term bearish on the Hungarian forint after the currency retraced its losses thanks mainly to planned, additional monetary easing from the ECB. Goldman expects the forint to return to its weakening trend against the euro after more easing by the Hungarian central bank and a decline in local risk premium. Moreover, the forex debt exchange into forints will remove some of the balance sheet constraints and increase the tolerance for forint volatility and consequently more weakness. The government's policy direction of export-driven growth also indicates a preference for gradual forint depreciation in the medium term, the house said in a note on Monday.
However, Citigroup now expects Hungary's central bank to start cutting rates later in March only in minor steps, and its rate cuts may be limited to 50bps altogether versus the current 2.10% level, mainly on possible risk aversion driven by external events.
An official revise-up of fourth-quarter Polish GDP on Friday has already tipped the balance towards a smaller interest rate cut next week in Poland.
Rate cut expectation could explain the weakening of the forint, but dealers rather tie it to the dollar's recent rebound, Reuters said.
For the time being, the forint is still propped up by the ECB's u%oming QE and investors' expectations that two of the three major credit rating firms may improve their outlook on Hungary's rating within a month.
The forint traded at 272.35 to the dollar, down from 270.67 late Friday and 271.45 late Sunday. On Monday, it moved between 270.15 and 272.38, a nearly three-week low.
It was quoted at 284.66 to the Swiss franc, down from 284.30 late Friday and 284.41 late Sunday. Its range on Monday was 282.43 to 284.70. It reached the highest at 281.07 last Thursday 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.
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