Much could be decided in the coming weeks about EU funds and central bank measures. All of these affect the Hungarian currency’s performance. Whatever happens, we will either shift towards the much coveted 350 or the much dreaded 450 EUR/HUF level.
In recent months, the Hungarian currency market has been characterised by large movements. In mid-October, the EUR/HUF exchange rate was well above 430. However, since then, we have seen a brief period of below 400. Will we end up buying EUR above or below 400 in the future? It may depend to a large extent on the fate of EU funds and confidence in the central bank, tozsdeforum.hu writes.
The fluidity of the exchange rate
The exchange rate of a currency can be determined by a number of internal and external factors. Thus, in principle, we should not be surprised by large swings in the forint exchange rate. While the current account of Hungary has improved due to the months-long decline in gas prices (which are currently rising), inflationary pressures remain very strong, tozsdeforum.hu reminds us. While international investor sentiment has become more positive in recent weeks, the Russia-Ukraine war is also prompting investors to be careful with Hungarian assets.
The drama over EU funds has been dominant
The list goes on and on. There is no doubt though that the drama over EU money has been the most dominant in recent weeks. Among other things, markets may be interested in two main things. First, how much funding Hungary will eventually receive and second, when we can expect these payments. As long as this is not clear, uncertainty may remain in the forint market. This is because market participants cannot accurately predict when the issue will be resolved.
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In addition to the above, the monetary policy of the Hungarian Central Bank and the market’s perception of it are of paramount importance. What matters is not only the specific level at which the central bank sets the base rate or the extent to which it tightens liquidity in the market. Confidence is also a key issue – investors are much less likely to take positions against the forint if the central bank is committed to financial stability.
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