Has the Fed decided what is happening in the foreign exchange market?

The dollar started to weaken significantly after the interest rate decision and Powell’s press conference, touching 1.09 against the euro, but the important level proved to be a strong resistance for now, the dollar came back to 1.086. But even with that, it’s down 0.8%, and today’s decision and announcement point more in the direction of the dollar weakening.

The dollar is greatly weakened against the domestic currency after the interest rate decision, currently the minus is 2.2 percent, now one dollar has to be paid HUF 353.5.

Jerome Powell said in his speech that he remains committed to the fight against inflation, which is still high. The central bank governor said at one point that “further action will be needed,” but also said that would not necessarily mean rate hikes. The statement further weakened the dollar, it is already 1.1% weaker, standing at 1.089.

The American central bank published its latest interest rate decision, according to which, as expected, the benchmark interest rate was raised by 25 basis points, the benchmark interest rate band thus increased to 4.75-5%.

After the decision, we can see extremely violent movements on the foreign exchange market, the forint strengthened a lot against the dollar,

while the euro also strengthened a lot against the dollar.

The forint held its own in the afternoon, trading at 388.5 against the euro. In other words, it has worked off the accumulated disadvantage in the morning and, after a minor wobble, is holding its own in the afternoon.

In the past few months, the exchange rate of the forint has been characterized by extraordinary movements, but I wonder where it can go in the near future and what are the domestic and international factors that determine the direction of the exchange rate of the domestic currency. Why does the forint react so sensitively to all market-influencing news? At our next free investor club event, we will cover this topic with the help of three invited market experts. Participation is free, but registration is required For a Signature subscription bound.

Participants of the conversation:

Szilárd Buró, head of financial innovation, Equilor Befektetési Zrt.

Orsolya Nyeste, senior analyst, Erste Bank

Zoltán Török, senior analyst, Raiffeisen Bank

Moderator:

Károly Beke, analyst, Portfolio

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The drop in the forint in the morning proved to be temporary, as in the last half an hour the forint was able to get stronger than the morning level against the euro, the quotations were slightly below 388 on the interbank market.

As shown in the figure below: with today’s strengthening, the forint has reached a key level, since the rising trend line drawn to the local low of 373 at the beginning of March and then to the levels around March 10 is drawn right here, and a horizontal support line can also be identified at 388, so now the exchange rate is stumbling at the intersection of these two lines. If the forint weakening trend persists, the exchange rate will bounce out of this 388 zone, if not, then the space will open up before a further strong forint strengthening.

The forint hovered above 392.2, then fell to 390.6, and finally stabilized above 391. Volatility is particularly high, as the forint can move through a large exchange rate range in a short time.

The forint continues to fall, reaching the level of 392 against the euro in the last few minutes. This corresponds to a drop of 0.8% on the day.

In the morning, the euro/forint exchange rate is already above the level of 391, which corresponds to a fall of almost 0.6% in terms of the forint.

The forint began the morning with a weakening, it is already around 390 against the euro, which is 0.3% higher than the exchange rate on Tuesday evening.

On Wednesday morning, the forint was around 389.3 against the euro, which represents a minimal increase of 0.1 percent compared to Tuesday evening’s level. Yesterday, the HUF rallied strongly, since a day ago it was around 395, and at the beginning of the week it threatened to break through the psychological limit of 400. According to the signs, the tensions regarding the banking system have eased, and this has also reduced the pressure on the HUF. For now, it is difficult to say whether there will be more skeletons in the closet. Tonight, the market is paying attention to the Fed’s interest rate meeting, the central bank will also publish its latest forecasts, but even more important will be what will be said about the stability of the financial sector after the American bank failures. This may also affect the foreign exchange market, and possible fluctuations in the dollar exchange rate may also affect the HUF. Against the dollar, we are now at 361.5, while the British pound costs HUF 443.

Among the forint’s competitors in the region, the Polish zloty started the day with a 0.2 percent weakening, while the Czech koruna is stagnant for the time being. In the emerging market, the Turkish lira is up 0.2 percent against the dollar, and the Russian ruble has weakened by 0.15 percent compared to yesterday.

The euro strengthened significantly against the dollar on Tuesday, so far this morning there is no clear direction in the market, the quotation is around 1.076. As we mentioned, the Fed’s interest rate decision may have a longer-term effect on the exchange rate today, according to expectations, the US central bank will raise interest rates by another 25 basis points. The Japanese yen is stagnant for the time being, but the British pound is starting the day with a 0.4 percent gain.

Cover image: Getty Images