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Forint wobbles then mostly stable on interbank market, still down in dollar

MNB

The forint was trading at 318.39 to the euro late Wednesday on the interbank forex market, up from 319.66 late Tuesday. At 319.94 to the euro early Wednesday, the forint moved between 318.38 and 320.87, after it fell to a new three-year low at 321.35 on Tuesday.

The dollar's renewed strengthening in euro terms still pressured the Hungarian currency, but the impact was balanced later in the day by some improvement of the Russian rouble against major currencies, leaving the forint down against the dollar only.

Repeated attempts to break 321 to the euro signal that the trend is still downward, and that the forint could revisit 2012's all-time-high of 324 in the near future. If it does, the 330 level would come into focus, analysts say. Debt market developments also played against the forint.

German and US market yields for the 10-year benchmark rose on the secondary market after data showed headline deflation reached the euro area the first time since 2009 but core inflation started to rose slightly in December, cooling expectations for a nearside quantitative easing by the ECB, and fresh US foreign trade, employment and mortgage applications figures pointing to growth suggested the Fed might not postpone a rate rise expected for this year.

But Hungarian yields fell as a policy rate cut in Romania fuelled expectations that Poland and Hungary might follow suite in view of disinflation. Fresh data on slowing industrial and manufacturing producer prices inflation in Hungary in November on an annual basis, and continuing deflation month-on-month, backed expectations.

So, the risk premium of Hungarian longer-term debt compared to first-rated debt narrowed.

Meanwhile, ten-week and three-month Hungarian issues in the last couple of days with sharply rising yields despite heavy oversubscription suggested that the government was eager to raise public debt even at higher costs to replenish liquidity, a development which could also pressure the forint.

Commerzbank spotted national Bank of Hungary (MNB) governor Gyorgy Matolcsy's increased concern regarding the possibility of extended deflation across the EU on the back of falling oil prices. Although Mr Matolcsy sounded satisfied with Hungary's own inflation outlook, this could be the beginning of the central bank mulling fresh rate easing in the coming months," Commerzbank said in a note on Wednesday.

But expectations for Hungary's rate move, however, are not all for a cut. Erste Bank expects Hungary's key policy rate to stay unchanged at 2.1% throughout 2015, a view it says was confirmed by the central bank governor's comments out Tuesday. Mr Matolcsy said tax-adjusted core inflation in Hungary is still on a steady path, and the country's inflation course is favorable, Erste recalled in a note on Wednesday.

The forint traded at 269.49 to the dollar, down from 268.87 late Tuesday. On Wednesday, it moved between 268.39 and 270.71, a new more than twelve-year low.

It was quoted at 265.12 to the Swiss franc, up from 266.16 late Tuesday. Its range on Wednesday was 265.07 to 267.17, after it hit another nearly three-year low at 267.36 on Tuesday.

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