Forint falls on US GDP

EU

The forint was trading at 311.02 to the euro late Wednesday on the interbank forex market, down from 309.72 late Tuesday. At 309.70 to the euro early Wednesday, the forint moved between 309.02 and 311.48, after a three-week high at 308.48 Tuesday intraday.

The Hungarian currencyʼs fortunes turned around Wednesday afternoon when the latest revision of first quarter US GDP figures came in better than expected.

The forint remained well supported in the morning after it rode the renewed optimism about Greece in the preceding two days. Ironically, news about talks on Greece faltering again on Wednesday also helped, as funds bailing out of euro zone periphery government paper found their way not only into the safe heaven of German Bunds but, to a lesser extent, into emerging Europe assets as well, including those in Hungary, as these countriesʼ relative immunity from any Greek contagion and their assetsʼ higher yields offered a luring mix for risk-seekers.

However, the forint turned south in the afternoon, as -- right after the National Bank of Hungaryʼs (MNB) Tuesday rate cut and dovish guidance -- fresh US data suggested a much smaller decline in the first quarter than previously thought, reinforcing odds for a September rate hike by the Fed.

Analysts recommended caution on MNB.

Hungaryʼs monetary policy rate is only one indicator after Tuesdayʼs 15bps cut to another record low of 1.50%, Nomura said in a note on Wednesday, adding that the rate could bottom out at around 1.2%. It reckons Hungary will use other means, too, to try to keep monetary conditions "as loose as possible indefinitely." As a result, Nomura expects the forint to weaken against the euro and the Polish zloty, and that short-term interest rates will stay low. Meanwhile, Hungary will want to keep the key rate unchanged for at least the next year, Nomura said, pushing out its expectation for a first rate increase until the fourth quarter of 2016.

Commerzbank said if Hungarian consumer prices keep rising at the current pace and the central bank keeps cutting rates and then hold them unchanged at record low levels, Hungary may "easily" see real, or inflation-adjusted, interest rates turning negative. This would imply a weaker forint for next year. Commerzbank predicted on Wednesday just one more, and a smaller, 10bps rate cut to the currently 1.5% policy rate. Its change to its rate bottom forecast to 1.4% from 1.5% does not materially affect its end-2015 forecast of HUF 315.00 to euro, the bank added.

The forint traded at 277.83 to the dollar, down from 277.44 late Tuesday. On Wednesday, it moved between 275.41 and 278.52, after a four-day high at 272.20 Monday intraday.

It was quoted at 297.23 to the Swiss franc, slightly down from 297.09 late Tuesday. Its range on Wednesday was 295.92 to 298.20, after a ten-day high at 295.29 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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