Forint in trouble – EUR/HUF is close to 400 again

The forint has been on a steady decline against the euro and might continue its trajectory due to foreign trade flow setbacks in the coming months. The last time the forint fell so spectacularly against the common EU currency was in the spring of this year. Meanwhile, international markets are cautious, worsening the dollar exchange rate.

The forint continues to depreciate against the euro

Telex reports that the euro reached HUF 398.4 at dawn on Monday, and the situation had not improved significantly by the early hours of the day. Throughout the morning, the euro was trading steadily around HUF 398-399, and after 9 a.m., it crossed the HUF 399 mark. The Hungarian currency started the week badly, but its current deterioration did not come out of nowhere.

As Telex pointed out in a previous article, there has been a continuous deprecation in the EUR/HUF exchange rate in recent days. On 30 July, the forint reached a multi-week low against the euro, with the price of one euro hovering between HUF 392 and 395. The last time the forint performed this poorly against the euro was in March of this year.

An interesting point of comparison is that the USD/HUF exchange rate has not seen a similar fall, with Monday’s level of HUF 364 even an improvement on the price four days ago. This is due to the fact that, as Portfolio writes, international markets remain highly pessimistic, with recession fears in the US increasing significantly in recent days. This has caused a sharp weakening of the US dollar.

Macroeconomic data brings bad news for the forint

Meanwhile, Portfolio also reports that the latest Hungarian macroeconomic data do not paint an encouraging picture for the forint. Citing the analysis of Gábor Regős, Chief Economist at Granit Fund Management, the site writes that although the Hungarian trade surplus is significant, it has seen significant setbacks, and the decline in the value of foreign trade could have a negative impact on the forint.

As Portfolio points out, both export and import volumes fell by roughly 10 and 7 percent respectively, in June. According to Gábor Regős, the fall in exports can be explained by low external demand, “which is dragging down the performance of vehicle and battery production in particular – although this also means that the transition to electric cars is progressing more slowly than expected, but German industry is suffering from the opposite, low demand for conventional cars, which means the problem of vehicle production in general.” The decline in imports is mainly explained by low investment volumes.

Overall, Regő puts Hungary’s trade balance at roughly EUR 1.1 billion, which he says is “not low, but significantly below a year ago.” Presumably, a drop in export volumes could also be behind the Hungarian GDP decline in the second quarter of the year.

Besides the trade balance, these figures could have implications for the future of the forint, as well. As Gábor Regős writes: “This is a mixed situation for the forint: while the current account surplus is likely to remain, which supports the exchange rate, unfavourable exports and thus expected weak industrial data also spell bad news for the forint.”

At a point where the EUR/HUF exchange rate is already close to crossing the 400 threshold, and the forint has experienced multiple setbacks in the span of a few weeks, slowing exports and a stumbling industry may be, as Regős puts it, “particularly dangerous” for the future of the Hungarian currency.

Read also: