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Record low forint exchange rates

Hungary’s forint set an all-time low against the euro last week due to fears of a global recession, a trade war and a no-deal Brexit, but government bond yields were close to historic lows thanks to a solid economy at home, international news agency Reuters reported.

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The forint’s weakening took fresh energy as U.S. markets opened and the dollar gained, which usually causes riskier assets to fall. That trend triggered some stop losses in uncharted territory, said an unnamed dealer in Budapest cited by Reuters.

“The forint is not as attractive to a large investor pool as it used to be, on account of the record low interest rate. But common sense does dictate that 1-2 units higher than this and some people will start buying,” said the dealer.

Market players stressed there was no panic selling.

“The good news is that the forint weakening involves no panic, so a new low is unlikely to generate quick rises in selling pressure,” Erste Bank said in a note to clients.

The National Bank of Hungary (MNB) remains unfazed as it sees inflation declining again from the top end of its 2-4% tolerance range.

“The central bank has no exchange rate target,” it said in an e-mailed reply to Reuters’ questions earlier. “We do not comment on questions about the forint’s exchange rate level or the exchange rate’s development,” it added.

While the forint is exposed to global trends and the effects of a loose domestic monetary policy, Hungary’s strong economic performance and stringent fiscal policy keep government bonds attractive enough to keep yields near the all-time lows set in the middle of August, noted the report.

“Globally, [bond] investors are on the prowl for anything that is remotely secure and offers a positive yield,” a bond dealer cited by Reuters said. “Plus the government offers new premium retail bonds, which have replaced a big chunk of the supply,” the agency added.