Forint’s freefall: The dollar and euro take a toll on Hungary’s economy
The Hungarian forint is facing significant challenges, continuing its rapid depreciation against both the euro and the dollar. On Monday, the forint hit a two-year low against the dollar, while the euro also reached a record high, fueled by global economic factors and U.S. fiscal policies under Donald Trump. This decline comes at a time when Hungary’s economy is entering a recession, putting further pressure on the forint. With low interest rates and international market instability, the currency’s future remains uncertain, raising concerns about the extent of its weakening.
The Hungarian currency is facing a severe depreciation, hitting alarming lows against both the euro and the dollar. On Monday afternoon, the euro surged to a two-year high, reaching over 411 forints, before slightly retracing to around 410, Telex reported. This marks a continuation of the steep decline that began in late September, with the Hungarian currency also hitting a historic low against the Polish zloty, according to Portfolio.
The U.S. dollar is performing exceptionally
The forint’s weakening is largely tied to the robust performance of the U.S. dollar, which has reached a six-month high against the euro and a two-year peak against the Hungarian currency. The dollar’s rise, particularly in the wake of Donald Trump’s victory, is driven by expectations of expansive fiscal policies, which may generate inflationary pressure and force the Federal Reserve to maintain high interest rates. This strengthens the dollar, especially in a global economic environment where most countries are cutting interest rates to revive their economies.
The euro’s weakness is not solely due to the dollar’s strength. The ongoing challenges within the Eurozone, including concerns about Germany’s sluggish economy and the potential impact of Trump’s planned tariffs, are also weighing heavily on the euro. These tariffs are expected to reduce demand for European goods, diminishing the euro’s appeal among investors. Furthermore, the political instability in Germany under Chancellor Olaf Scholz’s leadership is further undermining confidence in the Eurozone.
Very few encouraging signs for the forint
For Hungary, the strong dollar presents a major challenge. The U.S. currency’s dominance often leads to a pullback of capital from emerging markets, including Hungary, as investors seek the safety and high yields of the U.S. economy, Világgazdaság explains. On top of this, Hungary’s domestic economic situation is not helping the forint. Recent GDP data show the Hungarian economy has entered a recession, leading to expectations of looser monetary policies. While lower interest rates may help stimulate the economy, they also weaken the forint further.
With the forint now at a two-year low against the dollar, touching 385.88 forints per dollar, questions arise about the future of Hungary’s currency. The Hungarian National Bank (Magyar Nemzeti Bank, MNB) faces a delicate balancing act, as further rate cuts may risk even steeper depreciation of the forint, without any clear exchange rate targets to guide its decisions. The currency’s value is poised to remain volatile, as both international and domestic factors continue to push it downward.
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Featured image: depositphotos.com
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