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Forint falls further on interbank market

Analysis

The forint was trading at 306.31 to the euro late Tuesday on the interbank forex market, down from 304.95 late Monday. At 304.99 to the euro early Tuesday, the forint moved between 304.48 and 307.57, a five-day low, near to an almost two-month low at 307.87 last Thursday intraday.

The Hungarian forint and the Polish zloty may weaken against the euro in the next few weeks, back to levels seen prior to the European Central Bankʼs quantitative easing program, as part of the core-market correction (with swiftly rising yields of best-rated sovereigns) seen right now, RBS said in a note on Tuesday. It sees euro-forint exceeding 310 in a likely "dynamic" reversal from recent trends. It recommends staying long euro-forint with 315 set as a near-term target.

The recent weakening of the currencies of central Europe is taking place in tandem with rising German Bund yields, indicating that the Polish zloty and the Hungarian forint are still taking their cues from the Bund versus the euro, Rabobank said. Based on a relatively positive outlook for the Hungarian economy and prospects of capital inflows driven by the European Central Bankʼs "gigantic" stimulus, Rabobank maintains its constructive view on the forint even after the Hungarian central bankʼs minutes confirmed rate-cutting will continue. Its baseline scenario assumes that another leg lower in euro-forint will unfold in the coming weeks or months.

A two-week old surge of best-rated sovereign yields resumed in strength on Tuesday, pulling up emerging market yields in their wake, with investors wanting higher fixed-income returns in view of an anticipated rate hike in the US, and expectations that the euro zone may be coming out of a deflationary period and starting to recover. Adding to uncertainty are rumors despite denials of the European Central Bank that it may cut short its stimulus program. Thus, European shares also fell sharply on Tuesday and the euro gained versus the dollar, adding to pressure on the forint, as a sell-off in global bond markets led investors to trim their exposure to risk.

The forint traded at 272.65 to the dollar, up from 273.37 late Monday. On Tuesday, it moved between 271.60 and 274.55, an almost two-week low after a more than two-month high at 268.08 last Wednesday intraday.

It was quoted at 294.22 to the Swiss franc, down from 292.55 late Monday. Its range on Tuesday was 291.98 to 295.96, a five day low, sinking nearer to a more than three-month low at 297.98 last Thursday 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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