Forint firming on interbank market

The Hungarian currency firmed versus the euro -- its trend only slowing after a late afternoon statement from the IMF which said an agreement with Greece was still far --but lost out to the dollar after data on surging US retail sales strengthened expectations for a Fed rate hike in September, and sent the dollar rising against the common European currency.

Central European currencies and government bonds still eased Thursday morning versus the euro after a Polish government reshuffle, but a surprisingly strong Hungarian government bond auction has steadied the forint already by noon.

Rising inflation and a pick-up in economic growth have fuelled a recent rise in bond yields in Europe, and coupled with political uncertainty in Poland and Romania and the Greek debt crisis, have suggested that policy easing by Central European central banks may be near the end.

But economists of the National Bank of Hungary (MNB), in an analysis published on the bankʼs webpage on Thursday, said the faster-than-expected inflation in May in Hungary "does not warrant a reassessment of the rate cutting cycle that was relaunched in March."

Central European government bonds rebounded as Hungary sold more paper than planned at an auction despite worries over demand after weeks of rising European debt yields.

Hungaryʼs three-year funding costs fell at the Thursdayʼs auction, but borrowing costs on five- and 16-year bonds rose, however, against previous taps, as emerging-market assets are likely to come under some pressure with the approaching US rate hike.

Watching the yield curve steepen, analysts also suspect the impact of the latest measure by the MNB to shepherd more of bankʼs funds from central bank deposits into sovereigns.

 The Hungarian government bond yield curve is set to steepen further, UniCredit said in a note on Thursday. "Hungary continues to suffer from a lack of domestic investors in long-term bonds and the central bank might have to implement additional measures if it wants to support the long end of the yield curve," it said. In the absence of such measures, the yield and swap curves could steepen further while the short-term yields remain well-anchored by rate cuts, excess liquidity, and the need to comply with stricter liquidity coverage ratios, it added.

 The forint traded at 277.08 to the dollar, down from 275.78 late Wednesday. On Thursday, it moved between 275.68 and 279.18, a four-day low, after a six-day high at 274.80 Wednesday intraday.

It was quoted at 296.19 to the Swiss franc, slightly down from 296.03 late Wednesday. Its range on Thursday was 295.14, a one-week high, to 297.40, after a nearly five-month low at 300.81 Monday 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.