Forint eases on interbank market

Contrary to the Budapest stock market, the Hungarian currency failed to benefit from good domestic budget and public debt figures out on Wednesday as the continuing slide of the yuan and worries over the Chinese and Asian economies as a whole knocked down risky assets in global markets.

While the euro hardly moved in dollar terms, the forint fell against both.

Still rangebound, the forint also struggles under pressure from government paper yields that have risen since autumn on discontent of foreign investors who feel yields have sank too low by then on central bank efforts to drive domestic banksʼ funds into government bonds.

While the government now seems to be in dire need of money after it limited forint debt issues late last year in order to reign in public debt to be in line with EU rules at the year-end cut-off date, banks are flocking back to the market, but drive yields even higher, profiting from the governmentʼs predicament.

This continues to pressure the forint as long as foreign investors are still waiting on the sidelines for additional yield rises to reflect more accurately Hungaryʼs junk status at the major rating agencies.

In the latest development, the regular Tuesday auction of three-month Treasury bills saw rising demand and an allotment worth HUF 44 bln instead of the HUF 40 bln offered, about twice the usual amount in the last couple of months, but yields jumped to 1.13%, the highest since last June, from 0.82 a week ago, and also 19 bps above the secondary market benchmark.

Another factor is the general perception that Hungaryʼs central bank is about to boost unconventional accommodation soon in an attempt to help the slowing economy.

The forint traded at 292.80 to the dollar, down from final quotes at 291.68 on Tuesday. On Wednesday, it moved between 291.13 and 293.73, after a nearly five-week low at 293.94 late on Monday. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

The forint was quoted at 290.11 to the Swiss franc, down from 289.18 late Tuesday. Its range on Wednesday was 288.86 to 290.89, after a five-day high at 289.14 Monday intraday, and a five-day low at 291.53 also on Monday earlier. 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.