Within hours, the forint’s two-week strengthening failed

The forint exchange rate is close to its intraday low in the evening hours, currently standing at 378.6. Movements of a similar volume can be seen against the dollar, so we are at 345.4 against the greenback.

In the early evening hours, the forint is still close to the daily low against the euro, we are currently at 378.4.

Against the dollar, the quotation has also moved away from the daily lows, we are currently at 345.

At the end of the day, the forint fell to a new low of 379 against the euro, i.e. within the day, the forint fell by 8 units since early morning, following the central bank’s signal that the upper edge of the interest rate corridor may be reduced next week, and then later, according to market expectations, the actually calculated central bank interest also begins to decrease. This is a marked market reaction, which may also affect interest rate reduction plans, although far-reaching conclusions should not be drawn from one day’s movement, and it is also important that the overnight deposit rate of 18% – which is extremely attractive at the global level – can remain at this level for several more weeks.

In any case, today’s drop of the forint is striking even on the graph showing the movement of the past one year, and it is clear how suddenly the exchange rate, which was “flirting” with the range below 370 yesterday, reached the level close to 380:

Yesterday, the forint was around 337 against the dollar, and today it has already turned over 346.

Today, the forint fell by only 2% against the leading currencies, while the zloty and the koruna stagnated. If we look at the relative performance of the regional currencies against the euro since the beginning of the year, we see that the forint, supported by high interest rates, performed the best, although before that it suffered the biggest fall until autumn. According to the current situation, the forint has strengthened by over 5% since January, while the zloty showed a minimal appreciation and the koruna over 3%.

One euro already costs more than HUF 378, the quote is around 378.6, which is around the daily low. The forint has weakened by 2% so far today.

The American stock market opened at 4:30 a.m. today, and with this, the turnover on the forint market may also increase, as some American traders react to the morning news. The dollar is currently falling, it has weakened back to yesterday’s level, meanwhile the forint is also weakening, passing 378. Today may have more excitement in store.

After the sharp drop in the morning, the forint started to strengthen, the euro quotes came back from 379 to 375.5-376, although the dollar also weakened a little against the euro.

Today, the forint-based government bond yields also fell in parallel with today’s large forint drop based on the reference yield determination in the afternoon. Behind this apparent contradiction lies the fact that investors, in preparation for expected central bank interest rate cuts, bought Hungarian bonds today in order to take advantage of the expected fall in yields (government bond price movements).

The weakening of the forint has stopped, the Hungarian currency has strengthened below 377, but even with this, it is still weakening by 1.4% today. The strengthening of the dollar also stopped just now, which could have helped the forint, and the level of 380 was already very close, which could also have created resistance in the EURHUF.

There is no stopping for now, the forint continues to weaken, it has already passed 378 against the euro. Now one euro costs 378 forints 30 fils, a 1.9% weakening so far today.

The quotations of the euro rose to the region above 377.5 in the last few minutes, i.e. the fast fall of the forint continues, since this morning we have already moved by 6 units due to the central bank’s message regarding the reduction of the upper edge of the interest rate corridor. All of this means that the forint has lost the strength it gained with the cautious strengthening of the previous days.

In the meantime, the dollar started to strengthen against the euro, the quotations fell from 1.098 in the morning to 1.0920, and this reinforced the fall of the forint, so the forint quotations against the dollar rose to 345, even though they were still around 338.5 in the morning.

The forint continues to weaken, the euro is already above 377. So far today, it has weakened by 1.6% against the euro, investors can sell the forint because of the central bank’s statement in the morning. Vice President Barnabás Virág said in an interview that as a first step, the central bank could narrow the interest rate corridor, which could soon be followed by a reduction in the benchmark interest rate.

Against the euro, the forint jumped up to the exchange rate of 376.6, then retreated to the exchange rate of 375.8, but again turned into a slight weakening.

Compared to the dollar, the forint lost more than 4.5 units, but by 10 am it had risen to 343.5. With this, it fell to the level of April 12, and is more than 6 HUF compared to its strongest point of the year, which it reached last Thursday at 336.9.

The exchange rate has already risen to 376.5 compared to the euro. Based on most indicators, the exchange rate can thus settle between 376.9-378.9, but if the exchange rate were to reverse, it could correct back to a level between 373.9-375. For the time being, the forint has taken over the previous resistances.

The HUF continued to weaken with minor stops, and by 10:30 it had drifted into the range above 374.7 against the euro. The last change was last Thursday, which means that almost a week’s gain disappeared in a few hours.

After a stable start in the morning, the forint was hit in the last hour or so, as quotes against the euro jumped from close to 371 to almost 375 after the central bank’s vice-president signaled this morning that the MNB could cut the upper edge of the interest rate corridor at next Tuesday’s meeting. This has been 25% since October last year, i.e. at that time it sent the signal to investors that the MNB is ready to raise the overnight deposit rate of 18% even further if necessary, but in the end it was not necessary, because from 13% The effective rate raised to 18% stopped the forint’s deep flight at the time, and started to strengthen the forint, which has essentially continued ever since. All of this led to the fact that the forint fell below 372.5 to 370, thus reaching a one-year high, and against the dollar, the exchange rate stood at around 338, also a one-year high, but it has now risen to around 343.

As we indicated above: the forint had already surpassed its peak at the beginning of March yesterday, as the exchange rate of the euro fell below 372.5 and then came the signal from the MNB that they could touch the upper edge of the interest rate corridor at next week’s meeting. The market apparently reacted to this with a drop in the forint, but it is important to emphasize, and the vice-chairman of the MNB also emphasized, that the central bank does not yet touch the 18% overnight deposit rate that is actually effective on the market.

On Monday, the forint was able to strengthen significantly against the euro, in which the dynamics of the past few weeks emerged: the 18 percent benchmark interest rate, as well as the weakening of the common European currency against the dollar, provided momentum for the Hungarian currency.

However, the technical analyzes have already shown that a support was formed in the exchange rate of the currency pair between 370-372. It is worth watching this concrete level, which is the most important level based on the RSI and DeMarks indicators. If it strengthens below it, further space opens up for the HUF. However, on Tuesday, the course got stuck in exactly this band.

The concrete level is also exciting because there was resistance in April 2020, November 2020, March 2021 and November-December 2021, but in March and April last year it was already a support.

On Wednesday morning, however, the forint weakened from here in a quarter of an hour, all the way to the level of 372.4. No other external influence can be detected, only the quasi-announcement made as a statement by Barnabás Virág, the vice-president of the central bank, in an interview on Wednesday morning.

He said:

• The extreme risk scenarios of the Hungarian economy have already been priced out, so there is an opportunity to reduce the upper edge of the interest corridor.
• A decision on this may already be made at next week’s meeting of the monetary council.

He also touched on what the first step of easing could be, as he said, “the next decision in line could be to modify the width of our interest rate corridor. A decision on a significant narrowing of the upper edge of the interest rate corridor may also be made at next week’s meeting of the monetary council.”

That this may have had an effect can also be seen in the fact that the forint-dollar pair also appears to be weakening, while in recent months the Hungarian currency has typically followed the euro, and major movements in the two major currencies, the forint, have also moved in a similar proportion. Now, however, the dollar has strengthened only minimally compared to the euro, while the forint shows a similar trajectory as compared to the common European currency.

By the way, no important macro data from the international arena can be expected on Wednesday.

Cover image: Getty Images.