Hungarian forint hits new 2-year low against the euro, attempts to recover
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The Hungarian forint plunged to a new two-year low against the euro on Monday morning, briefly reaching an exchange rate of 412.5. Although it attempted to stabilise and regained some ground to 411.7 later in the day, concerns about monetary policy and economic factors continue to weigh heavily on the currency. Meanwhile, external developments, including the nomination of Scott Bessent as U.S. Treasury Secretary by President-elect Donald Trump, added to the volatility.
Key factors behind the forint’s depreciation
The Hungarian forint’s recent struggles are not isolated incidents but part of a broader trend influenced by both domestic and international factors. Over the weekend, global markets reacted strongly to the announcement of Scott Bessent’s nomination, causing a chain reaction that included weaker U.S. Treasury yields, a declining dollar, and gains for emerging market currencies, Portfolio reports. However, the Hungarian currency remained under pressure due to specific domestic economic challenges.
One significant issue is the expectation of future monetary easing by the Hungarian National Bank (MNB). Current forward-rate agreements suggest that markets anticipate a 50-basis-point rate cut within six months and a potential total reduction of 75 basis points within nine months.
One of the unique aspects of the forint’s decline on Monday was its contrast to other regional currencies. While the Polish zloty, Czech koruna, and Romanian leu showed resilience against the euro, the forint’s weakness was exacerbated by speculation about potential changes in the Hungarian National Bank’s leadership. Reports suggest that Finance Minister Mihály Varga may replace György Matolcsy as the central bank governor, fueling expectations of a monetary policy shift. This speculation, combined with anticipated rate cuts in 2024, has raised concerns about the stability of the forint and its appeal to investors.
Economic and geopolitical context
As we reported before, the forint’s depreciation has been exacerbated by the ongoing war in Ukraine, which has strained regional economies. Since January 2022, the forint has lost significant value, with its exchange rate against the dollar rising from 324 to over 400 at its peak. Contributing to this are Hungary’s strained relations with the European Union, including the withholding of EU funds and concerns over Hungary’s close ties to Russia. These factors have fueled fears of economic instability, further driving down investor confidence.