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Forint stabilizes in volatile environment

MNB

The forint was trading at 315.48 to the euro late Tuesday on the interbank forex market, up from 315.75 late Monday.

At 315.88 to the euro early Tuesday, the forint moved between 314.28 and 315.89, after a more than five-month low at 316.03 Monday intraday.

Financial markets repositioned after the small Monday panic caused by Greece.

With even "Grexit" now broadly priced in, euro zone government paper turned around and yields fell across the board, not just in Germany, on perceptions that any Greek contagion would be well quarantined. Euro zone southern periphery benchmark ten-year yields, between 2-3% and falling on Tuesday, are about twice as high as in the spring when the European Central Bank started its assets purchase programme, but way down from the 7-8% range seen at the height of the 2011 euro zone debt crisis.

Being a luring bet well balanced between risk and yield, junk-rated Hungarian sovereigns followed suite, with the ten-year yield easing 2bps to 3.98% in the afternoon on the secondary market. The rate of its fall was smaller than seen in the euro zone, thus increasing its risk premia, too.

The Hungarian government sold a smaller than usual, but planned amount of three-month Treasury bills at an auction on Tuesday amid growing demand, and the average accepted yield fell 1bp from the previous auction to a new record low of 1.00%, also reflecting market perception that the events in an around Greece might not tighten much the outlook for some further easing by the National Bank of Hungary (MNB). Average auction yield on the three-month tenor was 7.67% early 2012, 5,49% early 2013, 2.90% early 2014, and 1.84% early this year.

The secondary market yield on the three-month Hungarian paper fell also 1bp to 1.11% by late afternoon on Tuesday.

Emerging Europeʼs reaction to "Grexit" fears has been fairly muted, reflecting the fact that the regionʼs direct links with Greece are small and that the crisis appears to be contained to Greece alone, Capital Economics said in a note on Tuesday. For most countries in the region, the real risk lies in their deep trade and financial ties with the wider euro zone, it added. As long as contagion from "Grexit" can be contained, Capital Economics remains relatively upbeat on the prospects for equities and currencies in Central Europe, meaning Romania, Poland, Hungary, the Czech Republic, Russia and Turkey.

Hungaryʼs government has built into next yearʼs budget safeguards -- reserves more than HUF 200 bln -- against the possible impact of the Greek crisis, a state secretary at the National Economy Ministry told public television in Budapest.

Late afternoon, the dollar suddenly gained strength on better than expected consumer confidence and manufacturing data from the US, and this pressured the euro, too. Until the figures came out, the forint was up also against the dollar on Tuesday.

However, a disturbing news of the day was that Hungaryʼs gross consolidated general government debt reached 77.6% of GDP in the first quarter according to the second reading from the mnb, higher than the preliminary 77.2%, and higher also from 76.9% at the end of last year, although down from 82.3% twelve months earlier.

The forint traded at 283.28 to the dollar, down from 281.01 late Monday. On Tuesday, it moved between 280.05 and 283.87, after a more than three-month low at 287.25 Sunday intraday. But the dollarʼs 0.81% gain in forint terms by Tuesday evening compares with its 1.86% loss on Monday.

It was quoted at 302.27 to the Swiss franc, up from 303.81 late Monday. Its range on Tuesday was 301.20 to 304.35, after a five-month low at 305.19 Sunday 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.

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