Hungary’s forint has suffered a sharp sell-off, briefly falling beyond the psychologically important level of HUF 370 to the euro on Wednesday morning. The currency has not been this weak since the days immediately preceding April’s parliamentary election.
The forint had been trading at around HUF 365 to the euro on Tuesday morning, but lost further ground over the following day. By Wednesday morning, the EUR/HUF exchange rate briefly climbed above 370 before settling just below that level.
This move is a significant reversal for the Hungarian currency, which had enjoyed several relatively strong months. Just a week earlier, on 25 August, the euro was trading at around HUF 360.
USD/HUF up 10 forints in a few days
The weakening has not been limited to the euro. The dollar-forint exchange rate has followed a similar trajectory, rising from around HUF 309 a week ago to approximately HUF 319 on Wednesday morning.
According to ERSTE market analysts cited by Forbes, a combination of international developments and rising energy prices is putting pressure on the Hungarian currency.
One of the key factors is the strengthening US dollar and rising American bond yields. Higher US yields can make dollar-denominated assets more attractive to investors, reducing demand for riskier emerging-market currencies such as the forint.
The US 10-year Treasury yield has risen towards 4.79%, while expectations of higher interest rates and increased demand for safe-haven assets have also supported the dollar.
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Oil prices add to the pressure
Rising oil prices are another concern for Hungary, which relies heavily on energy imports.
Brent crude has climbed by almost 5% and moved above USD 95 a barrel amid renewed tensions in the Middle East. For an energy-importing country, more expensive oil can worsen both external-balance and inflation prospects, creating additional pressure on the national currency.
The combination of higher oil prices, a stronger dollar and rising US yields has therefore created an unfavourable environment for emerging-market currencies.
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A sharp reversal after months of stability
The speed of the forint’s decline is particularly notable. The currency was trading near HUF 360 to the euro as recently as last week, meaning that the euro has become roughly HUF 10 more expensive in just a few days.
This move takes the forint back to levels not seen since before the April election, which shows how quickly international market developments can affect Hungary’s currency. Whether the forint can regain lost ground will depend in part on developments in energy markets, the Middle East and US interest-rate expectations in the coming days.
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