Hungarian forint became one of the world’s favourite currencies!

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Source: Daily News Hungary - Alpár Kató

The public opinion about the Hungarian national currency turned upside down in only weeks, an analyst of the Amundi Fund wrote to a leading Hungarian economy-focused news outlet. He added that the forint is one of the investors’ favourite currencies.

Hungarian forint performs well…

Péter Kiss’s article was published in Portfolio today, arguing that the forint is one of the world’s best-performing currencies in 2023. He supports that trend with arguments, but warns that 2022 was one of the worst years since the new currency’s introduction in 1946. And forint is still very vulnerable.

He names three main reasons behind the good performance. To start with, the “carry” of the forint is currently the world’s seventh highest. Carry means the interest rate difference between the carry currency (forint) and other so-called funding currencies. That has been 18 percent since last October, much higher than the euro’s 3 percent and the USD’s 5 percent.

Hungary’s EU membership is an additional reason investors put their money in the forint. Other countries having high carry values like Argentina, Türkiye, Egypt, Ukraine, Nigeria, Russia are not EU members. The Polish zloty or the Czech koruna has good carry values (7.3 percent and 6.7 percent), but those numbers are half the Hungarian ones.

…but remains vulnerable

The second pillar of the forint’s strengthening in the eyes of the investors is the agreement concerning the EU funds last year. The good news is that Hungary may acquire 100 percent of them if the government meets the conditions of the European Commission. Investors think that Budapest will not lose those EUR billions. And they did not turn away from the forint, despite the fact that the Orbán government could not obtain the first billion by the first deadline, 31 March.

The third reason is the positive change in Hungary’s macroeconomic state. Since the energy prices decreased significantly, the fundamentals of the Hungarian economy became more valuable. Furthermore, the inflation will be one digit by this year’s end, according to plans. Moreover, the Hungarian national bank increased the base interest rate very high last year to protect the forint. That is why the Hungarian national currency strengthened more than its regional competitors.

However, the forint remained vulnerable. That is why it plummeted again after the first negative news from the American bank sector came.

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