Central European government bonds and currencies rebounded on Wednesday after a sharp fall in the previous session when a surge in the U.S. dollar made some investors rearrange positions.
Although the dollar continued the soar on Wednesday, investors apparently thought things over, flocking back into emerging Europe assets to make quick profits ahead of the US Fed’s hike now penciled in for June instead of September as previously expectedt, while regional yields that have swiftly risen in the past couple of days offer increased risk premia.
The European Central Bank’s asset buying in the euro zone could create additional demand for Central European government bonds as well, analysts add.
The forint is set to strengthen in the medium term from improvement in Hungary’s trade surplus, and, consequently, in its current account surplus, Takarekbank said on Wednesday. Although exports and imports growth slowed, January’s €691 mln trade surplus, published on Wednesday, was well over market consensus. Takarékbank sees this year’s trade surplus at €8.4 bln or more, up from last year’s 6.4 bln.
Another factor helping the forint is that Hungary’s central bank is under no pressure to cut interest rates in March since the latest set of inflation data reflects a turnaround in the declining price trend, Bank of America Merrill Lynch said on Wednesday. But persistent forint strengthening on the back of the ECB’s quantitative easing may still trigger 75bps of rate cuts in total by the National Bank of Hungary (MNB) in the coming months, BofAML said.
February’s weaker-than-expected consumer price decline, in combination with ongoing strong economic growth, is taking some pressure off the Hungarian central bank to cut rates immediately and by a large degree, Commerzbank also said. Commerzbank expects 60 bps in total easing by September from the present 2.1%.
The forint traded at 286.74 to the dollar, up from 287.32 late Tuesday. On Wednesday, it moved between 286.54, a four-day high, and an early-morning 289.52, a new 13-year trough.
It was quoted at 284.63 to the Swiss franc, up from 287.42 late Tuesday. Its range on Wednesday was 284.63 to 288.58 after a three-week low at 290.07 Tuesday 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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