Hungarian forint at 4-month low against USD, further weakening ahead?
The Hungarian forint is at a 4-month low against the American dollar. The exchange rate stands around 370/USD these days. The last time it was that high was in June. What can we expect? Will the euro continue to strengthen as well?
Hungarian forint struggling against euro, dollar
The Hungarian forint started a weakening period again in the last few weeks. The EUR/HUF currency exchange rate is slowly but unstoppably climbing again. Even though the EU’s official currency was at a one-year low on 26 May at 384.39/EUR, it is above 400/EUR again, and it seems we have to get used to that exchange rate. The forint has been around 400 since the beginning of this month.
The trend is the same concerning the American dollar. Despite being at a 6-month low in August and September, the American currency reached a 4-month high in October with HUF 368-370/USD. The American dollar peaked in June and April, with exchange rates above 370/USD. In January, we only had to pay HUF 344.7 for a dollar.
According to the MTI, the forint traded at 400.05 to the euro around 10:00 in the morning on Friday, little changed from its rate of 400.23 late Thursday. The forint edged up to 369.07 from 369.33 against the dollar. It firmed to 425.81 from 427.10 to the Swiss franc.
Hungary’s risk remains high
Barnabás Virág, the deputy governor of the Hungarian National Bank, said at the annual conference of Portfolio yesterday that the American economy was in unexpectedly good shape. Therefore, the FED can introduce a moderate interest rate reduction course. The result is a strengthening dollar against the euro, which is bad news for emerging currencies like the forint.
Meanwhile, Hungary’s risk margin increased compared to the second half of the 2010s. Our risk margin is higher by 140 base points than it was then. Risk evasion from investors is strengthening, and geopolitical conflicts are escalating, which is not good news for emerging markets like Hungary because investors move their money to the safest currency in the world, the American dollar. If the USA gets involved in one of the conflicts, the EUR/HUF exchange rate can easily exceed the 410 level, hvg.hu wrote.
Sometimes even a well-formed sentence is enough
Mr Virág added that the Hungarian National Bank might keep its base interest rate decrease programme halted even after October. That statement helped the forint to strengthen from 402/EUR to 400/EUR.
The forint is in bad shape even compared to regional currencies
HVG tried to explain why the forint has lost so much of its value compared to other regional currencies (Polish zloty, Czech koruna, etc.) since 2004. They shared two shocking pieces of data as an introduction. When Hungary joined the European Union (1 May 2004), we had to pay HUF 250 for one euro. Currently, that exchange rate is 400, which means it lost 60% of its value.
Meanwhile, Czechia’s koruna strengthened. In 2004, they paid 32 koruna for one euro. Now, the exchange rate is only 25.3. Comparing the Hungarian currency with the koruna is even more shocking. In May 2004, a Czech koruna cost 7.74 forint, while now we have to pay 15.86. That is a more than 100% weakening.
High state debt, Orbán’s supermajorities, huge state investments
One of the reasons is the high Hungarian state debt and the fact that 30% of it is in foreign currency. If the forint weakens, our state debt grows instantly. For example, compared to H2 2023, the Hungarian state debt grew by HUF 504.1 billion in H1 2024.
Another reason is the government’s already announced pre-election money transfers. In 2022, the Orbán cabinet generated Europe’s biggest inflation by distributing thousands of billions of forint, gaining the fourth consecutive supermajority. Péter Magyar’s Tisza Party is just 2% behind Fidesz. Therefore, the Orbán government may prepare an even more significant money transfer before the elections in 2026.
Investing in Hungary is even higher because of the huge investments of the Orbán regime, like buying Budapest Airport or building the Belgrade-Budapest railway line.
New budget only after US presidential elections
The Hungarian government regularly says the weak forint boosts the exports and the economy. However, HVG argues that its disadvantages are far greater than its advantages.
The Orbán government places the country’s diplomatic and economic future in Trump’s victory in the November presidential election. For example, the government will only submit the 2025 budget after the election. In the last 14 years, annual budget bills were always submitted the previous May. That meant, of course, that the government regularly amended the budget since the 2025 budget accepted by the parliament e.g. in May 2014 needed several modifications in the next year.
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