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Forint back in euro-dollar crossfire

Ratings

The forint was trading at 310.40 to the euro late Monday on the interbank forex market, up from final quotes at 310.79 on Friday and 311.18 on Sunday. At 311.16 to the euro early Monday, the forint moved between 309.46 and 311.45, a four-day low, after a more than five-week high at 309.06 late Friday.

Over last week, the forint gained about 1% versus the euro, after garnering 0.13% over the week before.

The Hungarian currency found itself back in the euro-dollar crossfire while global markets apparently went back to a business-as-usual mode, re-balancing the euro-dollar pair into their pre-Fed relationship after the shock of last week when the US Fed left its base rate unchanged.

Despite unclear guidance from the Fed, investors ratchet the dollar back up as they take a US rate hike before the year is out still for granted, while they increasingly expect either a rate cut, or an expansion in the ECBʼs money printing programme, or both, in the not very distant future, an expectation that was bolstered by comments of ECB officials over the week-end, sending the euro south.

Late on Friday, Standard & Poorʼs left Hungaryʼs junk rating unchanged with "stable" outlook in a scheduled review. The move did not really surprise the market, although some analysts expected a raise in the outlook to "positive". But the echo of any disappointment was weaker than usual, analysts say, because Hungaryʼs government kept this time mum, and refrained from quasi demanding an upgrade which it likes to think of as something "long overdue", as it did ahead of previous scheduled reviews by the major rating agencies this year.

S&P sees Hungaryʼs potential growth as weaker than peers, its policymaking "generally less-predictable", its debt reduction path fraught with risks because of the governmentʼs track record of prioritizing state asset purchases over debt reduction, as well as 310electoral considerations. It also deemed the efforts for self-financing by Hungaryʼs central bank a positive on the one hand, but also a source of risk, on the other, as 34% of Hungaryʼs general government debt is denominated in foreign currencies, and nonresidents hold about 30% of commercial general government local currency debt.

All this could anchor the forint on the wrong side of 310 to the euro, while the current account surplus balances, analysts add.

The forint traded at 277.30 to the dollar, down from 274.90 in final quotes on Friday and 275.61 on Sunday. On Monday, it moved between 273.77 and 277.41, a five-day low, after a more than three-week high at 269.91 Friday intraday.

It was quoted at 285.22 to the Swiss franc, down from 284.13 late Friday and 284.15 late Sunday. Its range on Monday was 283.40 to 285.31, a five-day low, after a more than six-month high at 282.23 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.

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