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Something’s up: Why the US dollar no longer predicts the Hungarian forint’s movements
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In recent years, the relationship between the US dollar and the Hungarian forint has undergone a significant transformation, challenging long-held assumptions in currency markets.
Traditionally, the dollar’s movements served as a reliable indicator of global risk sentiment, with investors often turning to the dollar as a safe haven during periods of uncertainty. This pattern also provided valuable insights for predicting trends in the forint market, as a strengthening dollar typically coincided with a weakening forint against the euro.
Something went wrong with the US dollar
According to Portfolio, however, this dynamic has changed dramatically, particularly since the presidency of Donald Trump. The US’s unpredictable economic policies, the use of tariffs as economic weapons, and growing concerns over the sustainability of American public debt have all contributed to a shift in global capital flows. Foreign investors, once eager to hold US assets, are now gradually reducing their positions, leading to a situation where capital movements have a greater impact on the dollar’s exchange rate than traditional risk sentiment.
Dollar index no longer reliable
The result is a much weaker, sometimes even negative, correlation between the dollar index and the EUR/HUF exchange rate. In the past, a rising dollar index would almost invariably signal a weakening forint, but recent months have seen this relationship break down. There are now frequent instances where the Hungarian forint strengthens even as the dollar weakens, and vice versa.
This decoupling means that the dollar index is no longer a reliable tool for gauging risk appetite or for predicting the forint’s direction.
The repatriation of foreign funds from the US caused by the disasterous tariff war of the Trump Administration is a huge issue. Central banks including China’s have been divesting themselves from US treasury bills and purchasing gold for some time before Trump came into office. In the last couple of weeks there has been a stampede out of USD which is the reverse of what would normally happen in a time of great economic uncertainty and crisis. Gold has taken the dollar’s place as the go to place as a safe haven asset. The US must turn over one third of its’ entire federal debt over the next year and things aren’t looking too good if no one wants your currency. How do you cut rates to stimulate the economy when tariffs cause an economic slowdown but are inflationary ? Trump is now hitting the panic button saying the termination of Fed Reserve Chairman Jerome Powell cannot come fast enough. It’s all economic ruin caused by the worst president in US history.