Forint fairly stable in euro, gains versus dollar

The forint is up 0.37% versus the euro from final quotes last Friday, after easing 0.59% in the week before. It is up 1.87% from the end of last year, after it lost 6.12% last year, and 1.95% in 2013.

The Hungarian currency hugged the euro while both gained versus the dollar as fresh, dismal, Friday data from the US on personal income and spending, and weakening consumer confidence dented certainty in a US rate hike in December despite the Fedʼ hawkish guidance on Wednesday.

Anticipating a possible further ECB easing in December, longer-term first-rated euro zone sovereign yields continued to fall on the secondary market for most of the day before a slight upward correction late afternoon, while yields on corresponding junk-rated Hungarians kept on rising at a faster pace from earlier record lows. This also underpinned the forint with widening risk premia that were knocked down in September to levels seen unrealistic in the market by a host of central bank measures shepherding resident banks into government paper.

Outlook for the forint is seen mixed.

After Commerzbank forecast HUF 315 to the euro by the end of this year, HUF 320 by spring next year, and HUF 325 by next September on the probable US Fed tightening, sharply decelerating Hungarian GDP growth on scarcer EU funds and a global slowdown, and the Hungarian central bankʼs anticipated rate cuts, ING on Friday projected courses at HUF 308 by year-end, HUF 298 by end-March next year and HUF 293 by the end of next year to the euro.

It said the forint should firm steadily as the Hungarian central bank continues to pursue a loose monetary policy, but Central Europeʼs direct exposure towards China remains marginal and its currenciesʼ sensitivity to US rate increases and oil prices are among the lowest among emerging markets. Further policy accommodation of the ECB might also support the forint in the next months, as well as Hungaryʼs solid macroeconomic fundamentals and low inflation, ING added.

Citigroup is also bullish on the forint while bearish on the Polish zloty. On Friday, Citigroup forecast Hungarian government bonds might perform stronger as European government bond rates continue to trend lower, supporting the Hungarian forint.

In a note also on Friday, Societe Generale expected Hungary to keep its policy rate unchanged in November at the current, record low, level of 1.35%, and express a cautious approach to interest rates as for now. The central bank would also likely focus on its swathe of unorthodox instruments to anchor down borrowing costs. However, intensified downward effects from the euro zone swaying headline inflation to levels lower than the central bankʼs inflation trajectory, together with the ECBʼs extension of its state asset purchase program "may reopen the case for the resumption of rate cuts," SocGen said.

The forint traded at 281.70 to the dollar, up from final quotes at 282.63 on Thursday. On Friday, it moved between 280.32, a one-week high, and 283.01, after an almost three-month low at 286.69 late Wednesday.

It was quoted at 285.81 to the Swiss franc, a hair down from 285.62 late Thursday. Its range on Friday was 284.04, a more than two-week high, to 286.31, after a nearly two-month low at 290.35 and a five day high at 285.16 both last Friday 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.