Forint firms versus major currencies

The Hungarian forint corrected up against major currencies while the euro stabilized versus the dollar after a sharp drop on Wednesday, as first-rated government bond yields fell across the board after a worse-than-expected US manufacturing PMI reading that signaled growth almost grinding to a halt in September helped certainty in a near-side US rate hike wane some more, and hunt for yield seemed to resume.

In these circumstances, unusually weak uptake at a National Bank of Hungary (MNB) tender for its Interest Rate Swaps (IRS), an instrument tailored to prompt domestic banksʼ into longer-term Hungarian sovereigns, suggested that very strong demand at a regular government bond auction on Thursday with sharply falling auction yields was rather due to foreign interest, also supporting the forint.

Fresh data however, warrants caution as well.

Hungaryʼs government expects state debt as a percentage of GDP to edge down to 76.1% at the end of this year from 76.2% a year earlier, the National Economy Ministry said on Thursday. The end-2014 figure was revised down from the original 76.9%, the ministry noted. The projection for the end of this year, representing a minor decrease within the realm of statistical error, is still higher than the 75.4% envisaged in this yearʼs budget, and the 74.9% submitted to Brussels in the spring with Hungaryʼs updated convergence program.

Hungaryʼs gross consolidated general government debt, calculated at nominal value, in line with Maastricht methodology, reached 79.6% of GDP at the end of the second quarter, the central bank confirmed in a second reading on Thursday. Debt rose from 77.6% at the end of Q1 but was down from 82.7% twelve months earlier.

The stubbornly high debt ratio while economic output growth slows was usually mentioned in rating agenciesʼ assessments this year as one of the obstacles that keep them from upgrading Hungary to investment level.

The forint traded at 279.14 to the dollar, up from 280.51 in final quotes on Wednesday. On Thursday, it moved between 278.88 and 281.31, a four-day low in the morning to cap a 0.57% dive on Wednesday, after a five-day high at 278.15 late Tuesday, and a more than six-week low at 284.00 late last Friday.

It was quoted at 286.37 to the Swiss franc, up from 288.23 late Wednesday. Its range on Thursday was 286.06, a six-day high, to 288.31, after a nearly three-week low at 289.23 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.