The Hungarian forint ended Thursday’s session with a significant weakening against the euro. Friday did not start well either: we soon saw another multi-week low for the forint.
Yesterday, we wrote about the inevitable weakening of the Hungarian currency. Just like clockwork, the forint started weakening not long after we published our article. There has been no stopping ever since then: at the time of writing of this article, the EUR/HUF exchange rate stands at 378.46.
This means that the forint is almost one percent weaker compared to last night alone. According to Portfolio, there are several reasons for this:
- First of all, the dollar strengthened yesterday as expectations of a Fed interest rate hike strengthened again.
- The Hungarian currency was supported by the 370 level. It was unable to fall significantly below it.
- Some investors may close their positions out of caution ahead of Tuesday’s interest rate decision.
When the EUR/HUF exchange rate reached 377.85, it was already clear that
we haven’t seen such a low for the Hungarian forint since 26 April.
I called the upcoming Forint reversal about six weeks ago on an earlier Daily News Hungary article. The forint was drastically undervalued mid 2022 bringing it far away from its’ multi-year trend line. It appreciated considerably bringing it back to the trend-line. This obviously was caused by the massive interest rate hike by the Hungarian Central Bank to push down inflation. The international “carry trade” where large traders borrow at low interest in Euros or Dollars to convert into forints and purchase high interest short-term forint bonds or interest bearing accounts pushed up the forint. As soon as there is a perception that there will be interest rate cuts in Hungary and a reversal in the currency investors will reverse their carry trade thus selling their forints to convert back into Euros or Dollars to close out their loans. The problem now is that as the forint falls the price of imported goods will rise thus creating inflation in consumer goods. I am quite pessimistic about Hungary’s economic prospects in the near to medium term. The government has squandered billions of dollars on its’ conservative think tanks such as the Danube Institute and purchases it can’t afford and doesn’t need such as Vodafone Hungary. It wanted to spend $1.8 billion on a Chinese university in Budapest which it thankfully shelved. That’s where taxpayer money goes instead to fund schools or health.