euro

Vulnerability: forint faces tough months ahead

Hungary budget forint game

During its September meeting, the National Bank of Hungary (MNB) lowered its one-day deposit rate by 100 basis points to 13%. This measure may defend the forint exchange rate from the current fall. The Russia-Ukraine war and energy prices are still a risk, but the currency market is worried about the movement of the US and the dollar.

Meanwhile, the base rate was left unchanged, closing the gap between the two rates one year after the creation of the new facility, and concluding the normalisation of the extraordinary interest rate environment. Hence, from now on, the base rate will return to be the effective bank interest rate, 24.hu reports.

The base rate of 13% is still capable of strengthening the forint in “peacetime”, or at least preventing a substantial weakening. This is conditional on the absence of any turbulence in international markets, the outbreak of a new war or any geopolitical tensions or turmoil, said Miklós Kolba, senior treasury trader at ING Bank. We also wrote about the forint’s current decline HERE.

The current Hungarian base rate is outstanding on global scale as well

“It cannot be compared with the 30% interest rate in Türkiye, but currently Colombia is the only one with a higher benchmark interest rate than ours: 13.25%. In other Latin American countries, and particularly in Asia, interest rates are typically lower everywhere. But Hungary has a big advantage over these “competitors” in that it is part of the European community, which is generally subject to lower benchmark interest rate caps,” says Viktor E. Szabó, Investment Director at Aberdeen Asset Management in London.

However, we are still the riskiest in the region, with the worst credit rating and the highest debt-to-GDP ratio in east-central Europe. To make matters worse, the receipt of EU development funds continues to lag behind, with the country failing to deliver GDP growth since the fourth quarter, while a huge fiscal adjustment is needed. At the same time, inflation has not been reduced as much as communicated.

There are risks that could be bigger than latest clash between National Bank and Government

By the beginning of the summer, the EUR/HUF exchange rate had strengthened to around 370, but since then, it has been hovering between 380 and 390 (and even crossed well above 390 on 28 September). The main reason for this was that the dollar strengthened significantly against the euro in parallel with the US Fed’s interest rate hikes, and rising dollar interest rates tend to have a negative impact on emerging markets.

The debate over EU funding also continues, with some predictions that there could well be no agreement on development funds before the EP elections next June, Miklós Kolba warned.

This means that the Hungarian government has neither external nor internal resources to reduce the budget deficit in any meaningful way, and is unlikely to have them in the near future. There is a high risk that the country’s most important external market, Germany and the eurozone, will go into recession. This will leave little room for manoeuvre for Hungary to grow even with fiscal austerity, 24.hu explains.

In such a situation, it is unfortunate that the MNB and economic policymakers are at odds with or contradicting each other, after last week’s spat between central bank governor György Matolcsy and finance minister Mihály Varga. Moreover, the speeches of economic development minister Márton Nagy and prime minister Viktor Orbán have also worked against predictability.

The Russia-Ukraine war and the gas price hike remain a risk for the forint, but it is worth keeping a watchful eye on America. The dollar has been strengthening since July – weakening the forint.

Forint weakens uncontrollably, reaches 6-month low: 400 EUR/HUF on horizon

In recent days, we have seen a sharp weakening in the forint exchange rate. The 400 psychological level against the euro is slowly being reached again.

According to Portfolio, it is worth paying particular attention to the dollar now. The US currency is hovering around the 1.05 level against the euro. If it can break through it on a sustained basis, it could bring further weakening of the forint.

6-month low for the forint

Shortly before noon today (28 September), the euro was worth 394.53 forints. The last time the forint was weaker than this was at the end of March, hvg.hu reports. The exchange rate is now around 393.6, which is still 0.25% weaker than yesterday.

The forint is also helped today by the dollar correcting after reaching the psychological level of 1.05. It has not been able to sustain this level for the time being. The euro-dollar now stands at around 1.0533, 0.3% higher than Wednesday evening, Portfolio writes.

What triggered this?

As hvg.hu explains, there have been several events in recent days that may have worried investors. At the Economist’s rally (Közgazdász vándorgyűlés), first Finance Minister Mihály Varga spoke about the possibility of austerity measures, and then Minister for Economic Development Márton Nagy said that the government is in crisis management mode.

The coordination between the central bank and the government has now completely broken down. The national bank first in its interest rate decision on Tuesday and then in its Inflation Report on Thursday estimated that inflation could be higher than expected and that Hungary could be in a year-long recession.

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People have spoken: 2/3 of Hungarians would introduce the euro

forint euro bills

Support for Hungary’s membership of the EU is stable at over 70% in the country. According to those polled, the EU nowadays stands mostly for the protection of democracy and the rule of law, for working and learning in the EU and for improving the living standards of EU citizens. A two-thirds majority backs the introduction of the euro.

Policy Solutions study

The level of knowledge about the European Union is a significant determinant of the level of support for EU membership among Hungarians. According to a study published by Policy Solutions on Wednesday, the results of the EU knowledge test show that the higher the level of knowledge, the higher the proportion of pro-EU and the lower the proportion of those who are undecided on the HUXIT issue.

Main disadvantages of EU membership

Hungarians see membership of the EU as beneficial primarily for financial reasons. According to them, the main disadvantages of EU membership are excessive regulation, weakening of national sovereignty, migration, freezing of EU funds, sanctions policy.

The majority of Hungarians think Hungary receives more money from the EU budget than it pays in. However, 36% of those polled think Hungary has become a net contributor. The proportion of those who think Hungary is a net contributor to the EU budget has increased by 7 percentage points by 2023 compared to two years ago, Economx writes.

Direction of the EU

Hungarian society is strongly divided on the current direction of the European Union: 44% say things are going in the right direction, 47% say they are going in the wrong direction. According to Hungarians, in 2023, the EU mostly represents the protection of democracy and the rule of law (35%), the freedom to work, study and travel within the EU (28%) and the improvement of the living standards of EU citizens (25%).

Euro introduction supported

In 2023, the EU is most expected by both government and opposition parties to represent the value of peace. 44% of respondents put peace in the top three most important values, 35% said improving the living standards of citizens, and 31% said the EU should mainly stand for democracy and the rule of law in the future.

A two-thirds majority backs the introduction of the euro.

The majority also supports Romania’s accession to Schengen and the creation of a common European army. Hungarians would spend EU funds primarily on health care and catching up disadvantaged regions. Hungarian society is open to further EU enlargement, but the majority is against Ukraine’s EU membership.

The majority of government parties also believe that all milestones should be met to access EU funds. The suspension of the Erasmus programme is dividing society.

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Market leader Porsche subsidiary introduces the euro in Hungary

Euroisation euro forint

More and more signs make it clear that spontaneous euroisation began in Hungary because of the volatile forint. But a German carmaker made that official. The price of some of its new car types is only in euros. Of course, customers have to pay in forint. But it is easier to “freeze” the price in a less volatile currency than regularly changing it.

As we wrote in THIS article, more and more Hungarians are keeping their savings in foreign currencies, mostly in the EU’s official currency. That is because of the volatile exchange rate of the forint. As we wrote earlier today, the Hungarian national currency did not need much to lose some of its value. A clash between the finance minister and the national bank governor was enough for it to leave the 380-385 level and approach the 390/EUR psychological barrier.

Therefore, it is not surprising that not only people but also companies believe that keeping money in forint or sharing the price of valuable cars in forint is no longer reasonable.

Portfolio, a Hungarian economic news outlet, said Porsche Hungária no longer prices its new cars in forint. You may see forint prices only when buying an Audi or a Volkswagen commercial vehicle. If you opt for a new Volkswagen or Skoda, the price will be in euros. Of course, you will pay in forint, but the vendor will use the daily exchange rate to do the maths.

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Porsche says it was an economic decision

Porsche Hungária told Portfolio that they turned to euro-based pricing last December. The change concerns new Volkswagen, Skoda, Seat and Cupra cars. Audi and Volkswagen commercial vehicles’ pricing remained in forint. “That was an economic decision on our part”, the company highlighted.

The car’s price is fixed in euro, but the customers pay in forint, they highlighted. When they order the car, the price written in the contract is in euros. And that remains unaffected by the exchange rate changes until they get their new vehicle.

Viktor Zsiday, the portfolio manager of Citadella Fund, said that when different players of the Hungarian economy start to price in euro, that trend weakens the effect of the country’s economic policy. The more common a foreign currency becomes somewhere, the less influence the national bank can have on the economy. Spontaneous euroisation happens because the Hungarian economic policy makers abused their tools and intentionally weakened the forint.

Fragile forint: Spontaneous euroisation in Hungary?

euro money chinese loan fine

Due to the socio-economic challenges of recent years, people are trying to be more conscious about their savings. A significant part of the population has shifted from bank deposits and cash to investments. In addition, the phenomenon of euroisation in savings is gaining momentum. Thus helping to protect the value of savings by hedging against the weakening of the forint. This data was revealed by a survey commissioned by NN Insurance.

Outstanding savings rate in Hungary

Mfor.hu reported Hungary has an outstanding savings rate in the EU. According to Eurostat data, the savings rate of the Hungarian population rose from 9.6% to 19% by the beginning of 2023. This puts Hungary among the EU leaders, with only Germany (20%) boasting a better savings rate. The significant increase is mainly due to high inflation. A high-yield environment and fluctuations in the forint exchange rate have effectively forced people to make more sensible choices and more sophisticated financial solutions, in addition to reducing consumption.

New forms of savings

Recently, there has been a shift in household savings from simple bank deposits and cash towards various types of investment and self-care, including foreign currency-based schemes, in recent months. According to the Hungarian National Bank (MNB), in the first half of this year:

  • Household current account deposits and cash holdings fell significantly, by 9 and 4% respectively between end-2022 and mid-2023. This is hardly surprising, given that the return on money in the bank is minimal and inflation is in double digits.
  • The amount of money held in government securities and mutual funds jumped by 14 and 20% respectively over the same period.
  • Meanwhile, the amount of sums held in life insurance policies offered by market operators rose by 4% and the total value of voluntary pension funds by 7%.

Rising euroisation

Hungarian households are also exposed to fluctuations in the value of the forint. The depreciation of the forint is even more dramatic when it come to years of savings. In order to be shielded from this risk, people are saving in other currencies, such as the euro. According to MNB, in the second quarter of 2021, households held HUF 368 billion (EUR 959,471,864) in euro savings. Meanwhile in the same period of 2023 they held HUF 482 billion (EUR 1,256,699,561). This is a 25% increase in euro terms, even taking into account the exchange rate change over time (from EUR 350 to EUR 370).

The phenomenon of euroisation – when people in a country spontaneously start using the euro in their daily lives – and the increased demand for euro-based savings is also highlighted by a survey by NN Insurance. 60% of respondents expressed that they would feel more comfortable and safe if they could keep their savings in euros. Therefore, providers have to keep up with this demand.

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Dark prophecy for the Hungarian forint: 400 EUR/HUF soon?

euro forint 400

Equilor Investment Consultant Ltd. expects the forint to continue losing value in the coming months. We may see a 400/EUR exchange rate by the end of this year. Having said that, it was also revealed at a press event on Wednesday morning that Equilor does not expect the recession in Hungary to ease by the third quarter of this year. However, the Hungarian economy as a whole could still contract by 0.7%. Although inflation is slowing, it could still be high in 2024.

As we have reported HERE, the forint has been in a steady decline since mid-summer; it fell to the 375/EUR zone. On Wednesday, it was sitting at 385/EUR, and it is still on a downward slope, according to analysts.

Current Hungarian economic climate

As Porfolio reported, the recession may not end until the third quarter of this year. Several factors play a role in this negative trend, but the most prominent of all is the country’s sky-high inflation, which has profoundly destroyed consumer confidence. The fact that the government is further postponing investments does not help either. On top of that, it is understood that a new tax adjustment may be on the cards, too.
Besides all that, Germany’s industrial scene is also struggling. As the most important export market for Hungary, the country’s weak industrial performance has a direct impact on the domestic economy.
On the positive note, real wages are slowly turning upward, while interest rates began to drop. Thus, the economy could likely reboot next year. Another good news is that inflation may be in a single digit by November, while annual inflation could be around 6% next year (compared to this year’s 18%).

Nightmarish forint exchange rate

The high interest rates still support the Hungarian currency, thanks to the proactive measures of the Hungarian National Bank. Although the Hungarian government has lowered the key interest rate significantly, it is still twice as high as the Czech/Polish key interest rate. THE weakening of the forint could be also caused by the faster than expected interest rate cuts. The unfavourable macroeconomic climate (e.g. the recession along with the budget deficit) and the intensifying conflicts with the EU (and with the US) also take a toll on the fragile Hungarian currency.  Only sustainedly high interest rates and a snippet of good news on EU funds could bring about some strengthening at this point. Therefore, Equilor expects the forint to weaken further. It cannot be ruled out that the Hungarian currency may reach the 400 threshold against the euro next year.

In addition, the global real interest rates are not expected to return to the low levels seen in the 2010s, which will also limit the National Bank’s room for manoeuvre.

High inflation and interest rates have held back investment as well as consumption, while the backlog of EU funds is prompting greater difficulties than expected for the Hungarian economy – Equilor analysts said.

Conclusion

There is still a good chance that the forint will close this year below the 400/EUR level, but by the end of 2024, it could further plummet. In a particularly dim scenario, in 2025, it could drop to 405/EUR.

Forint takes a big hit: sharp weakening in a short time

On Tuesday, the forint weakened by 1.5-2% against the major currencies compared to its early morning quotation on the interbank foreign exchange market. In the evening, the EUR/HUF exchange rate stood above 387.

The euro was quoted at HUF 387.86 at 6 PM on Tuesday, down from HUF 382.15 early in the morning, privatbankar.hu reports.

The dollar rose to HUF 361.49 from HUF 354.20 and the Swiss franc to HUF 406.75 from HUF 400.11.

According to Tőzsdefórum, yesterday, the EUR/HUF crossed even the 388 level. The last time the forint was this weak was in mid-August, when a rapid rebound followed the fall.

As we reported yesterday, according to Bloomberg, the Hungarian state may buy a majority stake in Budapest Airport. This has been rumoured for more than 3 years; however, there is currently no information on the expected value of the transaction (Bloomberg speculates that the transaction could be worth up to EUR 4 billions). However, analysts believe that this news could also have a weakening effect on the forint, as the possible purchase could weaken the Hungarian budget balance.

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Forint jumps to a peak after major decision of central bank

forint euro bills

On Tuesday, the Hungarian central bank announced that it would cut the policy rate by a further 100 basis points, bringing it closer to the base rate. In its communication, the central bank stressed that it will continue to move cautiously on the interest rate path. Thanks to this, the forint strengthened, reaching below 380 against the euro, a one-month high.

The Monetary Council decided on Tuesday to set the key interest rate at 14% from Wednesday, Index reports. At the same time, the national bank left its base rate unchanged at 13 percent, in line with analysts’ expectations.

Even before the central bank’s decision, the forint strengthened, rising from 383 against the euro on Tuesday morning to close to 381 around noon. The forint rallied even further after the background discussion following the interest rate decision, reaching HUF 380.87 to the euro at 4 PM.

Following the central bank’s interest rate decision, the forint hit a one-month high against the common European currency.

On Wednesday morning, the Hungarian currency continued to gain momentum, reaching HUF 380.32 per euro at 10.30 and even dipping below 379 at around 12.15 PM.

Was it not the central bank’s decision that strengthened the forint?

“The forint reacted neutrally to the expected interest rate decision and to the central bank’s continued emphasis on caution,” Gergely Suppan said in an analysis sent to Index. “The forint responded to the sharp weakening of the dollar with a strong gain, breaking the 200-day moving average,” said the senior analyst at MBH Bank.

He detailed that the dollar weakened sharply against the euro and major currencies on the back of a sharp fall in job vacancies and consumer confidence, which lowered expectations of interest rate hikes. Meanwhile, the zloty stagnated and the Czech koruna strengthened slightly, Index adds.

Currency exchange at 12.25

EUR/HUF: 379.02

USD/HUF: 348.19

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Euro introduction in Hungary? Finance minister answers

Euroisation euro forint

It is premature to talk about Hungary adopting the euro, Mihály Varga, the finance minister, said at an event on Saturday.

It is important to restore balance to the economy as soon as possible, and fiscal policy must aim at reducing the deficit and the public debt, Mihály Varga said at the Tranzit festival in Tihany, in western Hungary.

At one point, Hungary had been in a position meet all conditions for joining the euro zone, bar the exchange-rate requirement, and the two most recent crises confirmed that had Hungary adopted the single currency, the Hungarian economy would be exposed to far less risk, Varga said.

The euro would also have several advantages politically, Varga said, noting that a Eurobarometer survey from January showed that 72 percent of Hungarians approved of the idea of joining the euro zone in the interest of stability.

But drawbacks, he added, were having to abandon an independent monetary policy and that the European Central Bank based its decisions mainly on the criteria of core countries such as France, Germany, The Netherlands and Italy, so Hungary may end up sidelined.

Central banker Gyula Pleschinger said during the debate that Hungary was now far away from joining the euro zone, “because we cannot even fulfill the Maastricht criteria”.

He said the country may be able to adopt the currency during the decade of 2030.

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Will the smallest Hungarian coin be phased out and replaced by a new banknote?

forint exchange rate money

Inflation remains sky-high in Hungary. This justifiably raises the question of whether the smallest five-forint coin will be phased out in favour of a larger denomination, the 30,000-forint note.

Inflation also affects cash use

According to the statistics of the Magyar Nemzeti Bank (MNB), high inflation has a direct impact on cash usage. There is less demand for larger denominations, and smaller denominations are used more often and therefore wear out faster.

In July, there were nearly 650 million banknotes in circulation. Compared to the previous year, there was a 4.1% decrease in value and a 2.6% drop in volume. The two largest denominations, the 10 and 20,000 forint banknotes, were less used.

Change in banknotes and coins?

The smallest value 5 forint coin accounts for 33% of all coins. “The inclusion of the 5 forint is not on the agenda,” the MNB told Index. They added that the coin is actively used and there is no reason to include it.

The MNB plays a key role in the design of the structure of forint notes and coins. Before a decision is taken, a lengthy impact assessment is typically carried out, as this involves huge costs.

“The introduction of new banknote or coin denominations is not on the agenda,” the central bank asserted. So, despite high inflation and a deteriorating forint, there will be no 30,000 forint banknotes for the time being.

The role of cash is diminishing

In recent years, the number of cashless, electronic payments has been growing steadily. However, Hungarians still often pay cash for smaller purchases.

MNB said that there was no upcoming target date for the introduction of the euro. “After Hungary joins the ERM II exchange rate regime, it will be necessary to examine the role that Magyar Pénzverő Ltd and Pénzjegynyomda Ltd can play in the production of euro payments.”

Forint unable to stand up: Despite good news, rapid weakening continues

forint exchange rate money

Despite continuous good news for the forint, the Hungarian currency is weakening again. This might come as a surprise given that both the central bank and the finance minister have indicated that they want a stable exchange rate. It is highly possible that there is a technical reason behind it now, after the failure to break through the high level in the strong direction.

In the early morning hours, it seemed like the forint could be strengthening. However, it changed directions real quick: in just an hour, the euro strengthened 4 units against the forint, Portfolio writes.

This happened despite the fact that in recent days, lots of good news have surfaced about the forint. Firstly, a central bank analysis announced that the devaluation of the forint is no longer considered favorable. After this, the Minister of Finance Mihály Varga emphasised that he is now also a supporter of the stable national currency.

Weakening forint despite the good news

Although the level of 383 per euro is not dramatic compared to the previous ones, the forint still weakened. However, after such strong state support, such a reaction would not really be expected, napi.hu writes. Perhaps this is exactly the problem: those who bought a lot of currency in the hope of further strengthening, when it looked like the exchange rate was almost going to move in a strong direction at the level of 370, have now lost hope. The reason is that the good news did not bring strengthening either, so they are now closing the positions.

Of course, this is only one possibility. However, such a process can often be experienced with various financial or investment instruments, if the testing of a large technical level takes a long time, but in the end it is not possible to pass it, napi.hu explains.

The EUR/HUF exchange rate reached 384.20 at 2.10 PM on Wednesday.

Hungarian finance minister: We need to think about the introduction of the euro

varga minister of finance

Last year would have been easier even if we had been part of the ERM-2 system, the precursor to the euro, Finance Minister Mihály Varga admitted in an interview with VG.

Although the vast majority of Hungarians have long been in favour of joining the eurozone, the Orbán government has made no effort to replace the forint with EU currency since it came to power in 2010. Now the situation seems to have changed due to Hungary’s economic crisis (huge inflation, no money coming in from the EU fund), and the Hungarian finance minister has at least mentioned the euro.

Minister Varga stressed in the interview that we committed to adopting the euro when we joined the EU, but that careful consideration should precede the choice of the right date for joining.

We should think about the possibility, but the government should not rush into this issue,

Mihály Varga said, citing the Czech Republic as an example.

The 2024 budget is planned for an exchange rate of 381 forints to the euro, the minister said.

The government expects economic growth of 4% next year, which several credit rating agencies consider over-optimistic. Varga said:

I will sign if it ends up being 3 percent.

He said analysts agree that growth will be strong next year, because the outlook for the Hungarian economy is good: foreign investment is coming in briskly, our investment rate is the highest in the EU, exports are at a record high this year, and the labour market is tight. The government expects growth of 1.5 percent this year.

Varga says Brussels is increasing deficits and causing economic damage by blocking the funds Hungary is due.

I find it inexplicable that three years after the launch of Covid, there are still countries, including Hungary, that have not received the support they deserve. As the programme is about to enter the repayment phase, we could have the impossible situation where Hungary is paying back the loans it has taken out and has not yet received either the grant or the loan part, he said.

The inflation outlook was also discussed. Varga expects inflation to accelerate its decline over the summer and even more so in the second half of the year, which will be helped by easing borrowing rates.

Of course, the public purse will suffer from lower consumption, as we have less tax revenue, but this also means that inflation will be able to fall faster than previously expected, the minister said, adding that there are also forecasts that the rate of price increases will slow to 6-8 percent by the end of the year.

Hungarian forint at its peak, but technical hurdle to come, says analyst

forint euro bills

After a sharp weakening, the Hungarian forint has strengthened against both the euro and the dollar in recent days. At noon on Monday, the domestic currency rose to 373 against the euro. It was a new two-week high. What is more, the forint strengthened to 332 against the dollar, which was a new 15-month high, said Attila Weinhardt, Portfolio analyst.

Two-week high, 15-month high

The forint climbed to a two-week high against the euro and a more than one-year high against the dollar on Monday morning. With the former at 373 and the latter at around 332, the currency has had a very good day, InfoStart quotes Attila Weinhardt, analyst at the Hungarian economic news portal Portfolio, as saying.

One of the main domestic factors in the forint appreciation is that the central bank interest rate remains very high, at 16 percent for overnight deposits. In addition, the investor environment abroad is supportive, the Portfolio analyst explains. As an example, he cites that the Fed, the US central bank, appears unlikely to raise rates further after July and is expected to start a cycle of rate cuts next year, starting in the spring and early summer.

The market hopes that the European Central Bank (ECB) will soon embark on a similar exercise, he noted.

In other words, he says, pricing in the top of the rate hike trajectory and then being fuelled by optimism about the cut, which is what matters most in the international environment right now. “This is what is also underpinning the so-called carry trade strategies that are playing on interest rate differentials, which is also driving the forint to stronger and stronger levels,” he said.

Technical barriers await the forint?

Based on this week’s macro calendar, which is rather uneventful, Portfolio’s analysts believe that the forint’s appreciation could persist. However, it is important that international sentiment remains favourable. At the same time, both the forint-euro and the forint-dollar are facing very strong technical barriers at a few units distance, signalling that there is limited room for further domestic currency strengthening, he added.

In Mr Weinhardt’s view, these technical barriers are in the 369-370 range against the euro and in the 329-330 range against the dollar. Basically, these technical levels could put a stop to the forint’s momentum.

Positive figures published: this could boost the forint

forint exchange rate money

According to the Central Statistical Office (KSH), in May this year, the value of exports calculated in euros was 5.2 percent higher, while that of imports was 5.4 percent lower than in the same period of the previous year. The foreign product trade balance improved by 1.3 billion euros. Compared to the previous month, the level of foreign trade product turnover increased by 13 percent on the export side and 7.3 percent on the import side. 

Low domestic demand plays key role in drop in imports

In May, the value of exports was 12.9 billion EUR (4,813 billion HUF), and that of imports was 11.8 billion euros (4,410 billion HUF). The product foreign trade surplus was 1.1 billion euros (403 billion HUF). 77 percent of exports and 69 percent of imports were conducted with EU member states. In May of this year, compared to a year earlier, the value of exports in euros increased by 5.2 percent, while that of imports decreased by 5.4 percent, KSH wrote.

“In May, the foreign product trade balance developed favourably, the balance has not been at such a high level since September 2020. So now, the surplus is not only positive but also particularly high,” revealed Makronóm’s analysis. Based on last month’s data, the exchange rate may have improved in May as well, i.e. due to the normalisation of the energy market, the increase in export prices may have exceeded import prices. Taking this into account, the volume of exports may have increased slightly, while that of imports may have decreased more significantly. Therefore, it is unlikely that the weak performance of the industry is caused by exports, where moderate growth is achieved. Low domestic demand  plays a role in the decline in imports.

Current account balance may be on the mend

The current figure is also important because it indicates that the balance of the current account may also improve on an annual basis, writes Index. This is necessary after the significant deterioration that occurred last year due to the high energy prices. In addition, hopefully, this will help the forint exchange rate somewhat after last week’s dramatic weakening. However, in the coming months, as a result of the gradually decreasing inflation, consumption may also pick up. If this occurs, it will also prompt an increase in imports, but in parallel, industry growth is also expected, so the balance does not have to deteriorate yet.

Good news for the forint

In April, the value of exports calculated in euros increased by 3.4 percent, while that of imports decreased by 4.0 percent. With this, the Hungarian foreign trade balance became surplus for the third consecutive month, which can be evaluated as a turnaround after the previous period, which showed a significant deficit. “Despite the unfavourable performance of the industry, exports managed to surge while imports plummeted. In addition to the change in volumes, the improvement in the exchange rate may have played a key role in this”
– evaluated the data, Gábor Regős, the lead analyst of the Makronóm Institute.

Investors turned away from the Hungarian forint: here is their reason

On Wednesday, the Hungarian forint weakened against the major currencies compared to its early morning quotation in the interbank foreign exchange market. At the same time, it seemed that investors turned away from the currency: and they have a good reason.

Slightly weakening forint

The euro rose to HUF 371.19 by 8:30 PM from HUF 370.27 early in the morning. The dollar was quoted at HUF 339.90, up from HUF 338.11 in the morning. The Swiss franc was at HUF 379.33 after HUF 378.16 earlier, napi.hu reports.

The Hungarian forint weakened by 0.2 percent against the euro, 0.5 percent against the dollar and 0.3 percent against the Swiss franc.

Taking profits ahead of US inflation data

According to currency market experts, investors are taking profits from the region’s currencies ahead of the release of US inflation data on Friday.

Since the start of the year, the Hungarian currency has strengthened against all three currencies, gaining 7.1 percent against the euro, 8.7 percent against the dollar and 6 percent against the Swiss franc.

Hungarian forint confuses the masses: Where to from this frozen state?

forint exchange rate money

The Hungarian forint has been doing quite well recently. However, for a few days now, it appears to be frozen and nobody knows which direction it will take next. When it is changing, it is changing only by the smallest bits. On Tuesday morning, the forint exchange rate was mixed. It is not yet possible to say which direction the Hungarian currency will take for the rest of the day.

The Hungarian currency weakened slightly against the euro and the Swiss franc on Tuesday morning compared to Monday evening. One euro was worth HUF 369.41 at 6.30 AM (369.29 at 9 AM), up from HUF 369.01 on Monday. Meanwhile, the Swiss franc rose to HUF 377.88 from HUF 377.64. However, the dollar fell to HUF 342.86 from HUF 343.33, Index reports.

Yesterday, we wrote that no matter what obstacle gets thrown in from of the Hungarian forint, it is still going strong. You can read more about the causes and reasons HERE. Furthermore, on 9 June, the currency strengthened to a one-year high and broke the nearest record: read details HERE.

Despite all, the Hungarian forint is still going strong: how?

The government did not inspire confidence with its intervention in the bond market. The fate of EU funds is very uncertain. Despite these factors, the forint is shaking off these concerns, whereas in the past, they would have weakened the currency.

There have been several events recently, which were supposed to make investors lose confidence in the strength of the Hungarian currency. Nevertheless, the forint is going as strong as ever. According to experts, there are good reasons for this, Forbes writes.

The negatives

  1. The Hungarian government abruptly intervened in the savings market, with people being more and more pushed to purchase government bonds. Such steps, especially when taken without prior communication and consultation, do not strengthen investor confidence.
  2. We are not making much progress in accessing the EU funds. Márton Nagy, Minister for Economic Development, recently spoke about the need to prepare for a scenario without EU funds. At the same time, Finance Minister Mihály Varga stated that the government has no backup plan in the 2024 budget in case the EU funds don’t come through.
  3. The budget, filled with optimistic figures, is showing cracks, as it includes several tax increases. Market participants are increasingly monitoring whether the deficit will spiral out of control.
  4. Meanwhile, the Hungarian National Bank (Magyar Nemzeti Bank, MNB) has begun its interest rate-cutting cycle. However, this process hasn’t been well-prepared and accompanied by consistent and tight communication.

Forint still going strong

Despite the aforementioned factors, which had always weakened the currency thus far, the forint unexpectedly strengthened to a one-year high against the euro on 9 June, with an exchange rate of HUF 367.69 per euro. The exchange rate has remained below the 370 level since then.

Sándor Jobbágy, the leading macroeconomic analyst at Concorde, said that they did not anticipate any significant impact on the exchange rate due to the MNB’s interest rate-cutting cycle.

“The MNB closely monitors market expectations and emphasises this in its commentaries. It cuts interest rates in line with the already priced-in level of rate cuts, accompanied by strict comments. Therefore, we expect that they will not surprise the foreign exchange market with larger-than-expected rate cuts,”

he said in an interview.

However, an important factor behind the strength of the forint is a trend that we talk about less often with the arrival of good weather and warmth. According to him, the development of European energy prices in recent months and the improvement in Hungary’s balance of payments have had a positive impact on the forint.

What does the future hold?

Jobbágy and his team do not anticipate any significant further strengthening of the forint compared to the current EUR/HUF levels, partly due to these factors.

“However, there doesn’t necessarily have to be a rapid weakening in the near term. For example, if the reference interest rate is reduced to the level of the base rate by autumn, the forint would still have a significant interest rate advantage over the euro and even the major regional currencies. By then, inflation, with a faster decline compared to the region, could reach around 10 percent by the end of autumn,”

he explained.

Hungarian forint made a massive move: here is the new record

forint euro bills

The Hungarian forint moved in a narrow range this week. It was unable to break free from the 370 EUR/HUF exchange rate level for long. However, the currency strengthened on Friday afternoon and climbed to a one-year record high.

Just a few days ago, we reported that the Hungarian forint hit a one-year high. On Wednesday, this record was breaking below the 368 EUR/HUF level. On Friday, the forint even went below 367.7, standing exactly at 367.69 at 5:40 PM, Index reports.

Inflation data was kind to the Hungarian forint

The most important factor in the strengthening of the forint was the May inflation data released on Thursday. The data showed that the consumer price index rose by 21.5 percent on an annual basis, while core inflation was 22.8 percent, Zoltán Varga, senior analyst at Equilor, pointed out to the Hungarian news portal.

“There are many positives to be taken from the data. On a monthly basis, food prices have stopped rising, while household energy has fallen by 3 percent as consumption declines,” the expert explained.

He added that the price of services continues to rise, with an increase of 0.9 percent compared to April.