Forint recovers on ECB move

Central European currencies rebounded on Tuesday as euro zone yields dove after a European Central Bank (ECB) official said the bank would increase its bond buying ahead of the summer.

The ECB will "moderately frontload" its bond purchases in May and June in view of traditionally low market liquidity in July and August, Benoit Coeure, a member of the ECBʼs Executive Board told an audience on London Monday evening.

The ECBʼs bond-buying programme has boosted debt in the region, but a recent upward correction in core market yields has spilled over into the Hungarian and Polish government bond markets, pushing yields also up.

Hungaryʼs sale of HUF 40bn of three-month Treasury bills in line with the offer on Tuesday saw demand more than doubling from two weeks ago, with slightly falling yields.

Meanwhile UBS noted that the Central European currencies were weaker against the dollar. "This is essentially a euro move and Central Europe is sat in the middle of that. But it has come in the context of the significant recent upward moves in euro-forint and euro-zloty, so given how much they have moved, it is possible we will see some stabilisation," UBS said.

Earlier, Raiffeisen said in a note euro-forint could revisit 310 within a few days.

However, UBS is not utterly optimistic either. Emerging market currencies were suffering from higher euro-dollar volatility, it said. "This is keeping investors away from emerging markets. In a world where volatility is extremely high it makes investors more reluctant to come into emerging markets and take the carry on offer," UBS strategists said.

Erste Bank also said the game was far from over. The recent weakening of Central European currencies and government bonds -- including those of Poland and Hungary in particular -- may also be a signal that investors are selling up as they brace for a possible Greek default, Erste said in a note on Tuesday. "As Greece stumbles toward default, the question everyone is asking is whether the fallout can be contained," it added.

Other factors capping the forintʼs gains are rating agencies seen in no rush to upgrade Hungary back to investment level, the continuing easing bias of the National Bank of Hungary (MNB), and the volatile trajectory of Hungaryʼs public debt as shown by Mondayʼs statistics, while ever-rising balance of payment surpluses underpin the currency.

The forint traded at 274.53 to the dollar, down from 272.85 late Monday. On Tuesday, it moved between 272.28 and 275.07, an almost three-week low after a nearly three-month high at 267.21 last Friday intraday.

It was quoted at 292.67 to the Swiss franc, up from 294.52 late Monday. Its range on Tuesday was 292.16 to 295.41 after a for-day low at 295.61 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.