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Forint at 15-month peak against euro

Analysis

The forint was trading at 296.94 to the euro late Wednesday on the interbank forex market, up from 298.37 late Tuesday. At 298.55 to the euro early Wednesday, the forint moved between 296.17, a 15-month high, and 298.62.

With the dollarʼs pressure waning as expectations for a near-side Fed tightening recede, the Hungarian currency swept ahead after a slew of mixed, but generally strong data made Hungarian assets one of the most luring targets of investors seeking calculated risk against the backdrop of disappearing yields on first-rated sovereigns in Europe in the wake of the ECBʼs QE.

Analysts pointed to Hungaryʼs hefty trade surplus which continued to rise in February on exports growth according to a first reading published on Wednesday.

While annual consumer price deflation seemed to bottom out in March on fuel and food prices – although annual core inflation remained stagnant at low level after retail trade growth narrowed in February – the minutes of the end-March rate-cutting meeting of the National Bank of Hungary (MNB), also published on Wednesday, confirmed the central bankʼs easing bias was cautious but intact.

"Inflationary pressures were likely to remain moderate for a sustained period... Decision-makers agreed that cautious easing of monetary conditions might continue as long as it supported the achievement of the medium-term inflation target... (They) judged that inflation was likely to be significantly below the inflation target this year, and was expected to rise to levels around 3% (target) only towards the end of the forecast period," the NBH said.

A steady stream of small interest rate cuts by Hungaryʼs central bank will not do much to weaken the forint, traders and analysts say. "We shouldnʼt forget that a rate-cutting cycle – as long as it is predictable – will lure foreign investors back to the government bond market, resulting in further forint strength," Raiffeisen Bank said in a note on Wednesday.

Hungaryʼs policy rate is at 1.95%, a new record low, after a 15 bps cut at the end of last month.

The forint traded at 274.75 to the dollar, up from 276.02 late Tuesday. On Wednesday, it moved between 272.49 and 275.86 after a five-day low at 276.58 Tuesday intraday, and a more than one-month high at 270.07 Monday intraday.

It was quoted at 284.71 to the Swiss franc, up from 285.57 late Tuesday. Its range on Wednesday was 283.68, an almost two-week high, to 285.80 after a four-day low at 287.29 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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