ING Bank shared an analysis comparing the exchange rate changes of the Central Eastern European currencies (Poland, Czechia, Hungary, Romania). They compared what factors played a role in the exchange rate change of the different currencies, and found that global and regional ones were not the most decisive ones, especially in the case of the forint. That means the Hungarian national currency may have a bright next year, but there are some prerequisites the government needs to fulfil to reach a better exchange rate. You may find the details below.
In their analysis, ING Bank argues that multiple external factors affected regional currencies. These include the strengthening of the USD harming all emerging currencies. Furthermore, because of the Russian-Ukrainian war, investors became more cautious in the region. Finally, increasing interest rates also had a disadvantageous effect on countries having high state debt like Hungary.
However, the Hungarian forint lost its value even against its regional competitors like the Polish zloty, the Czech koruna and the Romanian lei. When compared to the Polish national currency, the depreciation of the Hungarian currency reached 10 percent. That means something local weakened the forint, portfolio.hu wrote.
From an ING chart showing the value change of the domestic currencies against the USD between November 2018 and November 2022, it is clear that the regional currencies moved together until April-May 2022, when the forint broke away from the others.
ING argues that in the short term, global factors can have a devastating effect on domestic currencies. However, Poland, Czechia and Romania managed to grow again a couple of months after the invasion began. Meanwhile, the forint’s recovery was slower and weaker. That is because in a midterm, the fundamental and vulnerability differences matter.
They found that in the decomposition of the Czech koruna against the USD between March 2020 and November 2022, the global and regional element was minus 11 percent, while the local was plus 12 percent. Thanks to that, the koruna could strengthen against the American currency.
Meanwhile, those rates were minus 10 percent and minus 13 percent in the case of the Hungarian forint, resulting in an overall minus 23 percent drop.
That is because Hungary is exceptionally vulnerable. The rate of energy import is the highest in Hungary in the altogether consumption, there are frequent changes in the economic policies, the government is balancing between the EU and Russia, and the reception of the EU funds remains a question.
What can the forint expect in 2023? If the negotiations with the European Commission result in a fortunate agreement, the forint might go below 380/EUR. A bigger strengthening is unlikely because markets already priced the success of the talks.
Others are not that optimistic. The Societé Generale expects the Hungarian forint to get stronger, but only until the 400/EUR threshold. Unicredit believes the HUF/EUR exchange rate will be above 425 in 2023. However, all prognoses agree that everything depends on the result of the EC-Hungary negotiations.