Forint in uncontrolled decline, crossing multiple lows: when will it stop?

This week, the forint has weakened against the euro by over four units, primarily influenced by disappointing GDP data. The domestic currency opened the day at a level not seen since late 2022 and then dipped even lower during the morning hours. Against the British pound and the Swiss franc, the forint is at its weakest in over two years.

The forint is weakening uncontrollably

On Thursday morning, the forint opened above HUF 408 per euro, according to Portfolio. While the situation on the foreign exchange market does not indicate panic, the forint is experiencing a gradual decline. Investors betting on the currency’s depreciation are increasingly active, sensing no significant factors to support a strengthening of the Hungarian currency.

Today is expected to be quieter in the foreign exchange market compared to yesterday, which saw significant movements due to global GDP data. However, the Hungarian figures were disappointing.

Photo: depositphotos.com

Should panic develop, it could lead to dramatic sell-offs, Index reports. Dániel Molnár, chief analyst at the Makronóm Institute, noted that if panic arises, it could trigger a wave of selling and rapid depreciation. While the currency’s weakening trend did not start this week, Wednesday’s GDP data highlighted the potential for intervention from the Hungarian National Bank (NBH).

Despite efforts by National Economy Minister Márton Nagy to manage market expectations regarding the poor GDP figures, the forint took a hit as economic performance declined by 0.7% compared to the previous quarter and the same period last year.

The forint did strengthen slightly against the euro, reaching HUF 406.44, but this did not last long, as Thursday saw the euro rise above HUF 409 again.

According to Molnár, the Hungarian currency’s persistent weakness is due to international developments, the escalation of conflicts in the Middle East, and rising global natural gas prices. The GDP data dealt a significant blow, bringing the forint to levels last seen in autumn 2022.

Molnár emphasised that it is difficult to pinpoint a psychological threshold for the Hungarian currency’s value, as these are usually based on historical patterns. Significant depreciation could have inflationary effects through import prices and erode trust in forint assets, which could only be curbed by higher interest rates. In the event of further depreciation, NBH intervention is likely.

The weakening trend began around the end of September, influenced by rising interest rate expectations from the Fed and the market’s pricing in a potential interest rate reduction cycle from the ECB. The escalation of Middle Eastern conflicts has also adversely affected emerging market currencies. These combined factors have been sufficient to weaken the forint beyond the psychological barrier of HUF 400.

Read also:

• No stopping: The Hungarian currency hits another record low after weak GDP report
• Forint hits new low: Weakest since 2022 amid economic struggles

Featured image: depositphotos.com