Forint fall slows against euro on interbank market

Central European currencies traded at multi-month lows on Thursday amid worries that ECBʼs disappointing easing last week will not protect them from capital outflows if the US Fed raises interest rates next week.

"The market cannot recover from the disappointing ECB action last week, and the low level of the oil price contributes to this weak development," Raiffeisen bank said in a note on Thursday, referring to the easing bias of regional central banks due to low inflation.

Hungaryʼs central bank is expected to put in new monetary-stimulus measures at its meeting next week, just one day before the Fed is expected to start tightening.

October figures suggesting Hungary might have an all-time high trade surplus over this year failed to lift the forint, as the data showed annual export growth decelerating from September and volumes falling in monthly comparison, resulting in a trade balance that narrowed from the previous month.

The weak forint is also making difficult for the government to comply with EU rules on cutting public debt. Apart from trying to prop up the forint in the market, the government has other means as well to shave off a tenth of a percentage point or two from the end-year debt figure which would be enough to comply, but such measures, as most of them involve buying back debt, will eat into reserves just ahead of large forex debt expiries next year, analysts say.

Difficulties showed up at the regular Thursday bond auction, too, where Hungaryʼs government sold HUF 45 bln of 3-, 5-, and 10-year government bonds, as planned, but steeply falling demand led to yields jumping 20-30bps compared to the previous auction, also pressuring the forint. While foreign investors are still discontent whit relatively low Hungarian yields, domestic banks demand must have also been low despite efforts of the central bank to shepherd them into Hungarian sovereigns, as the preceding interest rate swap (IRS) tender of the National Bank of Hungary (MNB) also attracted falling demand, resulting in a cut of the HUF 65 bln offer to HUF 43.5 bln. IRS tenders of the MNB, designed to diminish the risk of longer-term government paper for buyers, are available to domestic banks only.

However, as the euro lost about a third of its gains in the previous two days against the dollar, the forintʼs fall slowed to 0.4% in euro terms, after a dive of 0.7% on Wednesday. It is off about 1.5% versus the euro in the last four days. At the same time, losing some of euroʼs support, it weakened against the dollar, after minor gains in the last two days.

The forint traded at 289.99 to the dollar, down from final quotes at 287.02 on Wednesday. On Thursday, it moved between 286.80 and 290.14, one-week low, after a one-month high at 284.75 late last week Thursday. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

It was quoted at 293.27 to the Swiss franc, down from 291.77 late Wednesday. Its range on Thursday was 291.41 to 293.45, a more than three-month low, after a four-day high at 286.45 Monday 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.