Hungarian forint at breaking point: Near-historic low against pound sparks concern

The Hungarian forint has plummeted to a two-year low against the British pound, with HUF 501.5 required to purchase a single GBP on Monday morning. This is just shy of the all-time record of HUF 502.9, illustrating the domestic currency’s sustained weakness. The euro-forint exchange rate has also breached new lows, with the common European currency trading above HUF 415, marking its weakest performance in two years.

Weakening: Regional and global factors in play

The Hungarian forint’s poor performance extends beyond major currencies, as it also hit unprecedented lows against the Polish złoty and the Czech koruna, Világgazdaság reports. Analysts point to several key factors driving the depreciation. Chief among them is Moody’s recent downgrade of Hungary’s credit rating outlook from stable to negative. This shift, announced late last Friday, has shaken investor confidence, prompting a reassessment of regional holdings.

Photo: depositphotos.com

The downgrade reflects concerns over Hungary’s governance and its potential loss of EU funds, exacerbating fears about the country’s fiscal stability. Simultaneously, global market trends have added to the pressure, with the US dollar gaining strength. The dollar index (DXY), which measures the greenback against a basket of currencies, climbed 0.47%, signalling broad-based demand for safer assets.

Policy dilemma: Balancing rates and stability

Economic experts like Viktor Zsiday, portfolio manager at Citadella Fund, highlight deeper systemic issues. In Portfolio’s article, Zsiday argues that Hungary’s current interest rate policies are insufficient to stabilise the currency. Despite recent rate cuts aimed at stimulating growth, these adjustments have inadvertently fueled the Hungarian forint’s slide.

Zsiday outlines two potential paths forward: continued rate cuts, which risk further depreciation and heightened inflation, or raising rates to attract investors and stabilise the forint. However, both options come with significant economic trade-offs. He also underscores that the root cause of investor apprehension lies in Hungary’s economic policies and political risks, which only the government can address.

Hungarian forint: creator of challenging environments

The weak forint creates a challenging environment for businesses and consumers alike. With Hungary heavily reliant on imports, the currency’s depreciation inflates the cost of goods, fueling domestic inflation. This, coupled with high interest rates, creates a precarious economic environment. Hungary’s monetary policymakers face mounting pressure to restore investor confidence while balancing domestic economic needs. Yet without significant reforms or shifts in fiscal policy, stabilising the forint may remain a distant goal.

At 5 PM, the EUR/HUF exchange rate was above the 415 level with one euro costing HUF 415.07. The GBP/HUF rate had not improved too much by 5 PM, with one pound costing HUF 500.62 at the time of writing this piece. As for the US dollar, one greenback cost HUF 396.73 at 5 PM on Monday.

Read also:

• Moody’s credit rating agency warned Hungary changing outlook to negative
• Forint hits new low against the euro as exchange rate surges past 413
• Hungarian forint hits new 2-year low against the euro, attempts to recover 

Featured image: depositphotos.com