The Hungarian forint weakened beyond 366 against the euro on Thursday morning and approached 322 against the US dollar, extending a sharp sell-off from the previous session. Although the move looks dramatic after months of relative currency stability, the immediate pressure appears to be coming largely from abroad: a stronger dollar, surging US bond yields and renewed concerns over high oil prices are creating an increasingly difficult environment for the Hungarian currency.
The euro was trading at around HUF 366.7 shortly before 9 am on Thursday, while the dollar had risen to approximately HUF 322.1. The Budapest Stock Exchange also opened slightly lower, with the BUX index initially down around 0.2%.
The moves followed a difficult Wednesday for the Hungarian currency. By comparison, the Hungarian National Bank’s official exchange rate for Wednesday was HUF 363.43 to the euro and HUF 318.30 to the dollar, although the forint weakened considerably later in the trading session.
Why is the Hungarian forint weakening?
The most important factor is the sharp repricing taking place in global bond and currency markets.
Inflation concerns have returned to the centre of attention in the United States, increasing expectations that monetary policy could remain restrictive or even tighten further. St Louis Federal Reserve President Alberto Musalem said this week that further interest-rate increases were likely to be necessary to contain persistent inflation. US inflation pressures have remained elevated despite the Federal Reserve’s attempts to bring price growth back towards its target.
Higher expected US interest rates tend to push Treasury yields upwards and make dollar-denominated investments more attractive. That can strengthen the dollar while putting pressure on currencies such as the forint, particularly when investors reduce exposure to smaller or more volatile markets.
This mechanism helps explain why the forint’s decline against the dollar has been even more pronounced than its fall against the euro. On Wednesday evening, the Hungarian currency briefly weakened beyond HUF 322 per dollar, while the euro-dollar exchange rate was itself moving in favour of the US currency.
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Oil above USD 100 adds another layer of pressure
Energy prices are the second major concern.
Világgazdaság reported that Brent crude rose to around USD 103.8 per barrel on Thursday morning, while US WTI crude traded near USD 92.7. Hungary is a major net energy importer, meaning persistently expensive oil and gas can worsen the country’s external balance and increase inflationary risks.
Higher energy prices can therefore affect the forint through several channels at once. They raise import costs, complicate the inflation outlook and can reduce investors’ willingness to hold currencies from energy-dependent economies.
The Hungarian National Bank itself highlighted energy prices and the uncertain global financial environment as important risks when its Monetary Council met on Tuesday.
MNB rates provide a buffer – but global markets can overwhelm it
The central bank left its base rate unchanged at 5.50% on 22 September. The MNB said maintaining current interest-rate conditions remained necessary to achieve price stability sustainably, while explicitly stressing the importance of foreign-exchange market stability.
Relatively high Hungarian interest rates can support the forint because they increase the potential return available on forint-denominated assets. However, that advantage becomes less powerful when US yields rise rapidly.
The central bank is therefore facing a delicate balance. Hungary’s inflation outlook has improved significantly, but cutting rates too quickly could reduce the yield advantage supporting the currency. Keeping monetary conditions tight for longer, meanwhile, may weigh on domestic borrowing and economic activity.
The MNB’s latest communication suggests caution rather than urgency: policymakers kept rates unchanged and said future decisions would depend on inflation, global developments and Hungary’s risk premium.
Is 366 a turning point for the forint?
The level itself is psychologically noticeable, but it does not automatically signal the beginning of a lasting depreciation trend.
Indeed, the forint has traded at significantly weaker levels in previous years. What matters more now is whether the forces behind the latest movement persist. If US bond yields remain elevated, the dollar continues to strengthen and oil stays above USD 100, the external environment could remain hostile to the Hungarian currency.
Conversely, easing energy prices or a retreat in US yields could quickly remove part of the pressure.
Regional currencies provide another useful clue. Világgazdaság reported only small movements in the Czech koruna and Polish zloty against the forint on Thursday morning. This suggests that while global factors dominate the current market narrative, investors are not abandoning Hungarian assets in isolation.
For travellers and foreign residents in Hungary, a weaker Hungarian forint makes euros and dollars more valuable locally. For the Hungarian economy, however, the equation is more complicated: exporters may benefit from a weaker currency, while imported goods, fuel and other foreign-currency costs become more expensive.
The next direction of the forint may therefore depend less on Budapest than on Washington and global energy markets. For now, the combination of higher US yields, a stronger dollar and expensive oil represents precisely the kind of external environment in which the Hungarian currency traditionally faces its toughest test.
You can read this article in Hungarian on Helló Magyar.
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