Forint weakening may start today

The Hungarian forint has been strengthening for months after the historic lows against the euro and USD last year-end when the exchange rate even exceeded the psychological barrier of 430/EUR. Will those days return next week?

As we wrote yesterday, the Hungarian forint has become one of the foreign investors’ favourite currencies. It can be explained by the forint’s significant strengthening since end-2022. The currency exchange rate stands around 370/EUR, an annual record. And the Bank of America expects the forint to continue to move on that track. By the end-2024, they project a 360/EUR exchange rate.

However, they also admitted in their most recent analysis that the forint is still among the most vulnerable currencies. The American bank crisis early this year also took a heavy toll on forint. Despite the previous strengthening trend and the high interest rates the central bank introduced to protect the national currency, the forint started to fall as a result of the bad news.

The Turkish elections may have a significant effect on the forint

Let’s examine what today’s presidential and parliamentary elections in Türkiye may bring to us. According to portfolio.hu, the most pressing question is whether Erdogan retains his presidency and majority in the parliament or loses one or both. The opposition is united in Türkiye, but the inflation is skyrocketing, the economy is under central control, and the Turkish lira lost 95 percent of its value in the last 1.5 years. Thus, economic prospects are gloomy. However, uncertainty is a more considerable problem. Pollsters say the two presidential candidates have 50-50 percent, so it might occur there will be a second round on 28 May, increasing uncertainties.

Regardless of the results, there will be significant changes in the currency exchange markets today. Since the forint is vulnerable, any changes initiated by the Turkish elections may affect it seriously. And recovery can be a long and challenging process. Portfolio.hu argues that markets prefer Erdogan to leave, which could mark liberal economic reforms, the strengthening of the Turkish lira and the return of foreign capital previously impeded by Erdogan’s unorthodox policies.