Here is why the Hungarian forint has been strengthening recently

The Hungarian forint has been struggling in the last few weeks, reaching historic lows multiple times. There were days when you had to pay almost HUF 430 for 1 EUR, while the USD was stronger against the Hungarian national currency. Did that trend change? On Friday, for a short while, the forint was below 400/EUR. How long will that strengthening last?

On Friday, the currency exchange rate of the Hungarian forint was between 401 and 407. Of course, the national currency remained dependent on foreign currencies, so the reason behind its rise and fall is almost always international news or announcements. On Friday, for example, the setting up of Hungary’s brand new Integrity Authority and the new US labour market data had the greatest effects on the forint.

The strengthening of the forint against the euro reached 0.8 percent yesterday. Meanwhile, that rate was much higher in the case of the USD, 2.5 percent. By sunset, we had to pay 402.5 forints for 1 EUR and “only” 406 forints for 1 USD, which is considerably lower than in the previous weeks, portfolio.hu wrote.

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As we said earlier, the Hungarian national currency is volatile. That is because of the energy crisis. In 2008-2009, when the financial crisis hit Hungary, the reason behind the forint plunge was the high amount of state and citizen debts in foreign currencies. Opposition leader Viktor Orbán said then that a prime minister who could not keep the forint below 300 HUF/EUR should resign.

During the Fidesz government, the foreign debt was significantly reduced even though the the budget’s indebtedness rate did not change. It was just converted to an internal debt meaning that the Hungarian state owes money to its citizens through different types of bonds. As a result, thankfully, it cannot go bankrupt.

However, the government could not and did not want to reduce Hungary’s dependency on Russian energy. Furthermore, they offered administrative help and financial support for businesses and foreign companies building plants in the energy-intensive branches of industry. Currently, it is not only the Hungarian citizens who need the energy to heat their apartments and houses but also the industry and the economy. Russian gas and oil do not have an alternative. However, we must pay for the energy in foreign currency, which the Hungarian government buys for forint. And that continues to decrease its value.

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Experts say that the forint could remain below the HUF 400/EUR threshold only if Hungary reached an agreement with Brussels and got access to the billions of euros in EU funds. However, other good news can also help the Hungarian national currency. For example, on Thursday evening, the head of the State Audit Office announced he would nominate Ferenc Biró to chair the newly-created Integrity Authority supervising the expenditure of EU funds in Hungary. Furthermore, Katalin Novák, Hungary’s president, signed his appointment yesterday.

Mr. Biró’s international experience in reducing corruption is unquestionable, so that decision helped the forint to get stronger. That is because investors believe the new authority led by Mr. Biró may help the longer-term goal, the agreement with the EU. Provided that happens, Portfolio believes that the forint may go below the HUF 391-392/EUR level.

Moreover, the new American labour market data published on Thursday helped the forint because it weakened the dollar. The result is that the currencies of the emerging markets started to strengthen, the forint among them.

Tibor Navracsics, Hungary’s minister of regional development, said in an interview that 19 November is crucial regarding the EU funds. The European Commission will check out then how the Hungarian government fulfilled its anti-corruption agenda. That may open the way to sign the agreement.