euro

There are several reasons for the sudden weakening of Hungary’s forint

Spontaneous euroisation Hungarian forint exchange rate

The Hungarian forint went for a free fall for a short time against the euro but started to climb back. It wasn’t immune to the international panic, and might need some time before it could catch its breath again.

The Hungarian forint remained permanently around the 400/EUR threshold for a long time before “normalising” during the first months of 2023 around the 370 mark. The news of the recent international bank crises once again pushed it back to the former territory, but the experts of Pénzcentrum are arguing that won’t be the case again in the long term.

The international banking panic which manifested over the bankruptcy of SVB and Credit Suisse left a huge mark over the forint.

“The fall was very sharp, I had to go back two decades to find such a rapid fall in the forint exchange rate” – said Attila Weinhardt Portfolio’s macro analyst in the Portfolio Checklist podcast.

  • Read also: The Hungarian forint is being tugged, beaten, kicked, but it’s holding on

“Obviously, the bank panic was the leading news on Monday and even on Tuesday, and this had a major impact on the forint. It is worth noting that the markets also sold shares in a hurry, which also did not help, and this “sell at all costs” behaviour weighed heavily on exchange rates.” – said Weinhardt, who also warns of the volatile nature of the Hungarian currency.

“Compared to the currencies of the region, the fall in the forint has been outsized, but it is important to underline that the forint has been on a strong march in recent months and weeks, even recovering to 373.”

The banking crisis has only worsened the outlook for the forint

At the same time, Péter Virovácz, senior analyst at ING thinks that the banking panic could have been a secondary reason for the fall of the forint. He points out the strong investor mobilisation.

“The forint started to struggle somewhat earlier than the bank panic” – he told Pénzcentrum.

“After reaching a level below 375 on 1 March, quite a few investors closed their positions, realising the substantial profits they had made. This pushed the forint back into the 375-380 range, but many new money and forint positions did not enter the market at that time.”

Virovácz also points to the Hungarian government not making sufficient effort to receive the EU funds. This made the forint two times more vulnerable to other “emerging market” currencies.

“Investors were starting to get impatient about EU funds, with more and more starting to believe that the lack of agreement and little news was a bad omen. It was in this mood of uncertainty that the bank panic struck. And the forint behaved like a classic emerging market currency: investors immediately started betting against the forint because of the many vulnerabilities” – Virovácz analyses.

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The Hungarian forint is being tugged, beaten, kicked, but it’s holding on

money hungarian forint budget

On Tuesday, the Hungarian forint strengthened to 389 against the euro. Then, after a temporary fall on Wednesday morning, it strengthened further to around 388. That was a key level, so this gives us hope that the strengthening trend may remain.

In the morning, the Hungarian forint was trading at 392 against the euro. This was equivalent to an intra-day fall of 0.8 percent, Portfolio reports.

The forint turned around above 392.2, then came down to 390.6. The Hungarian currency finally stabilised above 391 around 10.15 AM. The volatility is particularly high, as the forint is able to move through a wide range in a short period of time.

However, the morning’s fall in the forint proved to be temporary. The currency was able to gain strength against the euro around noon, even stronger than in the morning. Quotes were also slightly below 388 on the interbank market, the Hungarian economic news portal writes.

The USD/HUF exchange rate was at 359.60 at half past noon.

Read alsoNATO ignores Hungary’s objection, holds Ukraine committee meeting

Even Romania is ahead of Hungary in adopting the euro

Billions of euros

Romania’s government wants to adopt the euro by 2026. That is a much earlier date than the current plan to join the euro area in 2029 would allow. This means that even Romania will most likely have the common European currency before Hungary does.

Romania is ahead of Hungary

The Romanian government would enter the euro “antechamber” in 2026, Adrian Câciu announced, according to Euractiv. The Romanian Finance Minister added that the implementation would require the full execution of the National Recovery and Resilience Plan.

The source of this is the one-off EU fund. The non-repayable part of this fund will not be paid to Hungary until the government has met 27 “super milestones”, Telex reports. According to Adrian Câciu, they “maintain” that the “horizon” for joining the eurozone is 2029. However, if the recovery fund is fully used by 2026, Romania could start entering the “antechamber” of the eurozone.

Introducing the euro is good for taxpayers

Vakmajom, a Facebook page concerned mainly with politics, analysed the effects the introduction of the euro had on Croatia. In their post, they write that Croatia has one of the lowest inflations in the region. What is more, And when it comes to public debt, the Croatian state pays the lowest interest rates when borrowing for 10 years.

The annual interest rate on 10-year government bonds is 3.9 percent in Croatia. Meanwhile, it is 8.8 percent in Hungary. The post concludes: “Thus, joining the euro has been good for Croatia and for taxpayers. The euro is spreading unstoppably because it has far more advantages than disadvantages. For taxpayers.”

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Hungarian forint collapsed: is 400 EUR/HUF close again?

money hungarian forint budget

The impact of the weekend’s US bank panic seems to be easing. European stock markets are already in positive territory and currency markets have calmed down. However, despite all this, the forint is still falling today, after yesterday’s huge weakening. It is the only currency to do so. Currently, one euro costs 393 forints.

The forint is still not doing well

Monday was all about the impact of the collapse of the US bank SVB around the world. Bank shares and stock prices fell, bond yields fell, the dollar weakened, oil became cheaper. On top of that, as a bad news for Hungary, the forint collapsed. The forint seems to be one of the most vulnerable currencies in the world. It certainly is in Europe, napi.hu writes.

Meanwhile, the Czech koruna, the Polish zloty and the Romanian leu weakened only a little. Why is the forint alone still weakening on Tuesday?

What are the reasons?

Recently, the fate of EU funds to be paid to Hungary has again become uncertain. In addition to the previous conflicts, a new one has been added to the list: the months-long delay in the Hungarian parliament’s ratification of the Finnish and Swedish NATO membership.

These uncertainties were compounded last week by a particularly bad message: open disagreement and even criticism between the central bank and the government. Thus, the forint was not helped by any softening statements (namely, the ones stating that the central bank and the government is cooperating).

Taken together, these were reason enough for investors to be among the first to get rid of the forint and forint-denominated assets.

What is to come?

The key question then is whether the emerging trend will survive this shock or whether it will break. The current exchange rate level is in a very important zone. If the domestic currency can hold on and start to strengthen again, the positive trend could be rescued. However, if it reaches the 400 level against the euro, this positive trend will be over, napi.hu concludes.

Read alsoHungarian forint fell sharply, not helped by the news from America

Hungarian minister set date for euro introduction in Hungary

Euro forint exchange

The Hungarian government confesses the “unified Hungarian nation” principle and “bears responsibility for each Hungarian”, the head of the Prime Minister’s Office said on Friday.

Addressing a conference marking the Day of Szekler Freedom, Gergely Gulyás noted Hungary’s law on preferential dual citizenship for ethnic Hungarians, as one of the first pieces of legislation the Fidesz-Christian Democrat parties had proposed in 2010. “Thanks to that law, there are 1.1 million ‘new’ Hungarian citizens living all over the world,” he said, adding that dual citizenship had created a bond between the state of Hungary and Hungarians “whether they live in the mother country or outside”. He also noted that some 20-25 percent of all Hungarians lived in communities outside Hungary. Concerning differences between those communities, he said Transcarpathia Hungarians were in the most difficult situation, adding that the greatest support should go to those people that stayed in their homeland despite the war in their country.

Gulyás highlighted Hungary’s ties with Serbia, and said “relations have fundamentally changed, turning an adversarial relationship burdened with mutual, historical grievances into friendship”. He added that the incumbent Serbian government’s approach to the Hungarian minority was “better than at any time since the Trianon Peace Treaty” of 1920.

He said the Hungarian minority’s situation in Romania was “difficult”, adding that Romania’s “resistance against Hungarian national symbols has not ceased to exist”. Concerning Slovakia Hungarians, Gulyás said he hoped that a recently established election alliance could again ensure ethnic Hungarians’ presence in the Slovak parliament.

Hungary will provide every assistance to all Hungarian communities beyond the borders, Gulyás stressed. Concerning the Ukraine war, he said Hungary should “stay on the grounds of common sense and remember who is the attacker and who the attacked, and do everything to prevent a regional conflict from spreading to Europe”. It is crucial that “the war should be kept outside the borders and NATO does not get involved”, he said.

The Hungarian government demands that international law be observed and respects the right of each country “both to self defence and territorial integrity”, he said. It is in the interest of Hungary and the whole of Europe that “there should be a ceasefire and peace as soon as possible,” he added. Once there is peace, we could “return to the mid-2010s when it seemed that economic growth and development had no external constraints”, he said.

Answering a question, Gulyás said “the issue of introducing the euro could be on the agenda in 5 or 6 years if we are doing very well”. He said such a move would require meeting 90 percent of the average economic level of the bloc, adding that “currently we are at 75-76 percent”.

Here is when the euro could arrive in Hungary

euro money

Márton Nagy, Minister for Economic Development, revealed that the government has serious plans to purchase Budapest Airport.

The minister covered several topics in his interview given to Index, including, among other things, the airport purchase and the introduction of the euro in Hungary.

Repurchase of Budapest Airport

Márton Nagy told Index that after the recent acquisition of Vodafone, one of the country’s largest mobile operators, the state is now planning to acquire Budapest Airport. He said that he is leading the negotiations for the purchase and that discussions have already begun. According to him, the acquisition of the airport is “a matter of national strategy.”

As recalled in a summary article by napi.hu, the airport has been in private hands since 2005. Previously, it was owned by the state. Now the state wants to regain majority ownership. The minister called the privatisation a huge mistake of the previous government, something that should be corrected as soon as possible.

The minister could not provide more details about the acquisition to Index. And, in particular, he could not estimate how much the majority stake would cost. However, napi.hu drew attention to the fact that the purchase of the airport was also raised two years ago. At that time, the press reported a purchase price of HUF 1,600 billion (EUR 4.2 billion).

Introduction of euro in Hungary

Index also asked the minister about the possibility of Hungary adopting the euro in the future. According to the minister, it is clear that Hungary would be better off handling economic crises if the country was in the eurozone. However, he stressed that the introduction of the euro should be considered in the long term. As he explained, the euro would still be there when there is no crisis, “and from then on it is a question of economic competitiveness.” The government is cautious about the idea of adopting the euro mainly because “an independent monetary and surveillance policy can help the economy catch up.” The euro could be introduced when Hungary reaches 90-95 percent of the EU average GDP per capita in purchasing power parity terms, the Hungarian minister concluded his answer.

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The new forint peak is here: What is the reason for the extremely rapid appreciation?

money hungarian forint budget

On Wednesday morning the forint started to strengthen sharply. The level of 375 against the euro was no obstacle for the Hungarian currency. The last time the forint was this strong against the euro was in April last year. What are the reasons for its strengthening?

Extreme forint strengthening

The forint has been performing extremely well all week. However, on Wednesday morning, it saw particularly strong buying power, napi.hu reports. The exchange rate quickly moved from 378 to 374.40 then to 373.96 against the euro. The phenomenon is welcome and not surprising, the news portal write, as it has become evident that the Hungarian currency has been on a strengthening trend in recent months. What could have triggered the process now?

What are the reasons?

It is difficult to pinpoint the exact cause of a currency movement. This is because the intentions of many participants shape the market. On Tuesday afternoon, the Hungarian central bank (MNB) gave a strong signal that a cut in the base rate and an easing of monetary conditions in general “is out of the question in the near future, as a sustained dismantling of the very high and stubborn inflation is needed at current levels.”

This means that, on the one hand, taking short positions in anticipation of a weakening forint has become extremely expensive. Thus, fewer and fewer people are trying to do so. On the other hand, the strengthening trend, which is likely to be permanent, may discourage shorting anyway. Furthermore, the persistently high interest rate may encourage more and more investors to try to skim off this interest rate, which is not available in other currencies.

Carry trade and lasting balance

These are “carry trades”, where the holders of a low-interest currency switch to the higher-interest currency and earn money in it. Their risk comes from the movement in the exchange rate, but as the upward trend appears to be increasingly stable, they may find this risk much less than before.

The words of the vice-president of the MNB on the development of the country’s balance of payments may also have been food for thought for investors. He detailed that the fall in energy prices is a crucial factor in balancing the balance sheet, and exports from new manufacturing capacity are starting to pick up. This could make the balance sheet not only balanced but even in surplus on a sustained basis. That already strengthens the forint exchange rate due to the euro surplus emerging on the market.

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Read alsoPositive prospects: Hungarian forint at a ten-month high

Constant strengthening is tiring: the Hungarian forint today

money hungarian forint budget

After strengthening earlier in the week, the forint has weakened significantly in recent days. On Friday morning, the exchange rate fell sharply again, with the dollar and the euro becoming more expensive. However, on Friday afternoon, the forint showed that it had one last push in it for this week. A summary of the path of the Hungarian forint this week.

The forint started to strengthen at the beginning of the week. It even reached a nine-month high against the euro on Wednesday morning. After that, the trend reversed and the Hungarian currency started to weaken, Index reports. From around 378-379 on Wednesday morning, it weakened back to 384 by midnight on Thursday.

Then came another weakening on Friday morning. The exchange rate started to fall shortly before 9 AM. The forint even briefly broke above 387 against the euro. A small correction then took place, and the exchange rate is still fluctuating. At around 2 PM, the EUR/HUF exchange rate was 386.62. At around 4.45 PM, the euro was trading at 384.59 forints after a small gain.

The fall of the forint against the dollar has been even more spectacular in recent days. The US currency was cheapest on Tuesday afternoon. Then, it was available for 351-352 forints. However, on Friday morning the exchange rate shot up to over 364. At 2.17 PM, the dollar/forint exchange rate stood at 363.87. After a small gain here as well, at 5 PM, the dollar was at 360.51.

Then, in the early evening hours, the forint started a strengthening trend again. At 7 PM, the EUR/HUF exchange rate was at 383.53, the USD/HUF was at 359.04. Just before publishing this article, at 8.25 PM, the USD/HUF exchange rate was at 358.80.

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Hungarians’ favourite holiday resort now only accepts euro

croatia street

Croatia joined the eurozone on 1 January. After a two-week transition period, from Sunday, only euro payments will be possible in the country, the Croatian daily Vecernji List reports. Since Croatia is very popular among Hungarians, this will affect them as well.

Based on the practice of countries that have adopted the euro as their national currency, the Croatian National Bank (Hrvatska narodna banka, HNB) expects that 1.1 billion pieces of metallic currency and 500 million banknotes will be exchanged by citizens during the specified period, Portfolio writes.

Plenty of kuna left

They added that the kuna coins weigh the equivalent of 124 Zagreb trams, or 5,600 tonnes, while the banknotes, if stacked on top of each other, would form a column 50 kilometres high, six times higher than Mount Everest.

Until the end of 2023, banks and other financial institutions will exchange the kuna free of charge at the predetermined exchange rate. After 2023, it can only be exchanged at the central bank. Banknotes can be redeemed indefinitely, but metallic coins only for the next three years.

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Should we expect HUF 360/EUR or HUF 400/EUR in 2023?

forint euro bills

That is the biggest question concerning a lot of Hungarians these days. The second half of last year saw some historic highs regarding the currency exchange rate of the forint, and many thought we would never see rates starting with number 3 again. However, after the EU deals, the forint started to strengthen, and that trend seems to continue in 2023. Here is how the experts calculate with the Hungarian national currency.

According to mfor.hu, the forint started 2023 well. Its exchange rate has been below 400 for days. The only question is whether that can continue to decrease or not.

In December, the long-awaited deal concerning the EU funds was signed. That means Hungary may get access to billions of euros but not immediately. Some of the development funds will remain closed for even two more years, others may start to heat Hungary’s economy already this year. Furthermore, the government must meet 27 preconditions, so long and hard negotiations are still ahead.

Anyway, the deal itself meant that the market took off the burden of possible EU funds failure from the Hungarian forint. As a result, the forint started to strengthen at end-December. Even though the trend was positive, the numbers were not conclusive. Many expected a stronger forint after the deal was closed.

Meanwhile, Hungary’s Debt Management Agency issued USD 4.25 billion of bonds a couple of days ago. That is because the EU funds will not come tomorrow, so the administration needs foreign currency to pay the increased energy bills of the country.

However, in that regard, it is good news that energy prices have been falling on the international stock markets recently. Now those prices are lower than when the Russian invasion of Ukraine started.

The experts of the Klasszis podcast of mfor.hu agreed that the forint may strengthen even until 360/EUR in 2023. They added that inflation would be the most influential on that possible strengthening. Barnabás Virág, a deputy governor of Hungary’s National Bank, said that the December inflation was expected to be around 26-27 percent in Hungary. Meanwhile, in the EU, that rate is below 10 percent.

On 13 January, the latest inflation data will be shared by the Central Statistical Office (KSH). The government and the national bank believe the Hungarian inflation will go below 10 percent by end-2023.

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Euroisation starts in Budapest this February

Essential Beauty Salon euro prices

A Hungarian beauty salon is to introduce EURO prices in Budapest in February.

According to blikk.hu, Essential Beauty, a beauty salon in the heart of Budapest’s downtown, the 5th district, is to use EURO prices because of the uncertain forint exchange rate and the soaring inflation.

The salon will use euro prices from 1 February, but their guests will be able to pay in forint in cash or by card. They will use the daily exchange rate in each transaction, which they added in a comment under their post, blikk.hu cleared.

The beauty salon is popular in Budapest. For example, the number of followers on their Facebook page reaches 14 thousand.

HERE you may find their new price list. Unfortunately, it can be read only in Hungarian momentarily. In English, you can only check the forint prices.

Here is their relevant Facebook post:

EURO will be introduced as a parallel currency in Hungary? Some cities already use it

Euro forint exchange

There are already hundreds of thousands of Hungarians who use the euro as an official currency. Some do not live in Hungary, but tens of thousands have their homes on Hungarian soil. But is it a realistic option for Budapest to introduce the EU’s official currency? And would that be advantageous for the Orbán administration? Below you may find the answers.

As we reported earlier, multiple Hungarian communities are using the euro in their everyday life. Austria introduced the EU currency in 1999, Slovakia in 2004, and Slovenia in 2007. Indigenous Hungarian communities are living in all three countries mentioned. The biggest one is based in Slovakia, with more than 450,000 souls. The Hungarian community living in Croatia adopted the euro on 1 January this year.

However, there are many areas and cities, even in Hungary, where residents, companies, and service providers use the EUR just like the forint. In Sopron and its surroundings, for instance, that is already a daily routine. Hungarians working in Austria receive their salary in euros, while Austrians come to do shopping sprees in Hungary. Therefore, all products are priced in euros as well since it makes everyday business easier.

Zoltán Pogátsa, a renowned Hungarian economist, said that this solution could be adopted in Hungary. It would be advantageous to introduce the euro in Hungary as a parallel currency, Mr Pogátsa argued.

He added that the forint in itself was not in trouble. The Hungarian economy weakens the national currency, he said. Mr Pogátsa added that this was because of Hungary’s considerable energy dependency and the low amount of the foreign currency reserve, index.hu wrote. That is why the forint weakened much more than the Polish zloty or the Czech koruna. Inflation does not depend on the currency a country uses, he explained. For example, the Baltic states also faced skyrocketing inflation despite they have already adopted the euro.

He highlighted that the Hungarian economic policy was wrong and the country should not have replaced the forint only because the Orbán government conducted a faulty economic policy. He added that provided Hungary joined the eurozone, citizens could become disillusioned as it happened after the country’s EU and NATO accession. That is because the euro alone could not solve the country’s economic problems.

According to hvg.hu, Hungary would not be able to introduce the euro now. However, there was an opportunity in the second half of the 2010s to fulfil the Maastricht requirements. But that would have meant the end of the monetary policy of Orbán’s Fidesz. Therefore, the government did nothing to do so. Currently, there is not even a target date for introducing the euro in Hungary. Meanwhile, Bulgaria plans to join the eurozone in 2024.

The Hungarian news outlet argues that joining the eurozone would not mean any advantage for Hungary at this moment. However, it would limit the government’s economic policy and end the autonomous monetary policy. Thus, the euro would result in less freedom for the government. And Orbán would not like that for sure, so Hungary is not likely to introduce the euro in the near future.

forint exchange rate - daily news hungary
Read alsoThe good days did not last long: the weakening of the Hungarian forint

The good days did not last long: the weakening of the Hungarian forint

forint exchange rate - daily news hungary

The Hungarian forint was doing extremely well in the last few days of 2022. The dollar went as low as HUF 372 and one euro even cost HUF 398. However, the new reality is different.

The forint started Tuesday weakening against the leading currencies. It fell from around 402 against the euro in the early hours to 404. The depreciation against the dollar was even greater.

9.18 AM

According to Portfolio, the forint weakened against the leading currencies in the morning. The euro/forint exchange rate was close to 403.5 from 402 in the morning. The domestic currency fell 0.5 percent against the euro this morning.

The fall against the dollar is even bigger: the USD/HUF exchange rate fell from 378 to 381. It has already lost more than 1 percent against the dollar.

9.26 AM

The forint fell further before half past nine. The EUR/HUF exchange rate was at 404.2, down nearly 0.7 percent intraday for the forint. The USD/HUF was hovering above 382, down 1.4 percent.

12.01 PM

At noon, the forint climbed to 403 against the euro, but it was still 0.4 percent weaker than yesterday. However, the forint continued to weaken against the dollar, with the rate now at 383, down 1.7 percent.

Much of the weakening is linked to the strengthening of the dollar, Portfolio writes. The American currency has moved towards parity against the euro.

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Thousands of Hungarians to use the euro instead of their old currency from 1 January

Euroisation euro forint

From time to time, experts raise the question of introducing the euro in Hungary instead of using the forint. Recently, when HUF reached historic lows against the EUR, USD, or CHF, it seemed that they were right. Now thousands of Hungarians will use the euro instead of their old currency from 1 January. And they are not the only Hungarians, who live on the territory of their ancestors and are already using the EUR. Below you may read the details.

Croatia is to introduce the euro instead of the Croatian kuna from 1 January. The Croatian national currency has been in use since 1994 when the period of transition from the Croatian dinar was introduced in 1991, the year Croatia’s war for independence ended.

Croatia is the 20th country to join the eurozone. Croatia and the council of the eurozone countries signed the relevant agreements in July.

The exchange rate between the HRK and the EUR will be 7.5345, Ecofin stated. Prices have been displayed in HRK and EUR from 5 September until the end-2023. The eurozone extended earlier with Lithuania in 2015. In mid-November, the European Commission stated that Croatia was ready to join the Schengen area, which they join on 1 January, 444.hu wrote.

On the 2011 census, more than 14,000 Croatian citizens said they were of Hungarian nationality. The historic Hungarian ethnic communities live in Croatia’s northeastern regions, in some old Hungarian villages dating back to the Árpád-era, for example, Vörösmart and Szentlászló. There, the Hungarians will use the euro from next year.

And they are not the only Hungarians living in the territory of their ancestors and using the euro. Austria has been using the euro since its official introduction on 1 January 1999. Tens of thousands of Hungarians are working in Austria, but they are not part of the historic Hungarian community living in the westernmost part of the late Kingdom of Hungary. Those Hungarians are only a couple of thousand near the Hungarian-Austrian border. Based on the latest census, their number does not reach 4,000.

Slovakia introduced the euro on 1 January 2009. There are at least 450,000 Hungarians living currently. Thus, they have been using the euro for more than a decade.

From time to time, experts raise the issue of introducing the euro in Hungary. The Orbán government is against the idea, and some economists keep stressing that Budapest could not fulfil the requirements of replacing the forint with the euro.

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Read alsoWeak forint: euroisation to come in Hungary

From 418 EUR/HUF to 405 in a week – what happened?

forint euro bills

On Monday morning, we were still paying HUF 418 for a euro. But then, the Hungarian currency accelerated on the news of the Brussels agreement. By Friday evening, the EUR/HUF was already at 405. It even hit a four-month high against the dollar after the US currency faltered on news of inflation figures.

The forint did very well this week

The agreement between Hungary and Brussels was reached on Monday evening. The decision was good for the forint, which strengthened significantly after the announcement. By 8:30 AM on Tuesday, the euro was trading at 410 forints.

That was a significant improvement for the Hungarian currency, which had started trading at 418 a day earlier. The forint strengthened further on Wednesday, but after some fluctuations on Thursday, the upward momentum slowed down and the forint closed close to 405 against the euro on Friday.

After the Brussels agreement, the Hungarian currency started to soar, Index writes. The big decision came on Monday night, when the Czech government, which holds the rotating presidency of the European Union, announced that they had found a solution to the issues blocked by Hungary in exchange for approving the agreements that apply to us.

The Hungarian currency at a four-month high

As the forint strengthened, the dollar weakened sharply on Tuesday. This pushed the forint to a four-month high against the US currency. At 2.25 PM on Tuesday, the exchange rate was still at 388.02. However, by 3.20 PM, it had fallen to 382.95. That is more than a five-unit strengthening in an hour. On Wednesday morning, the dollar did not recover either: the USD/HUF was at 382.5 forints at 11.15 AM. The last time the dollar was at such a low level against the forint was on 14 August.

The weakening of the dollar is being driven by recent inflation data on the US economy. It emerged that inflation rose less than expected last month, leading experts to expect the US Federal Reserve (Fed) to slow its rate of interest rate hikes, which explains the weakening of the dollar. The USD/HUF even briefly dipped below 380 on Thursday, before closing at 383 on Friday.

Read alsoThe forint is bursting with power today – it did something we did not expect

The forint is bursting with power today – it did something we did not expect

The forint strengthened sharply on news of the Brussels agreement. However, the rally appears to have stopped around 410 against the euro. But, on Wednesday, the Hungarian currency rebounded.

Wednesday morning

The forint was trading around 409.8 against the euro on Wednesday morning. That is a 0.2 percent gain for the Hungarian currency compared to Tuesday evening. On Tuesday, the EUR/HUF exchange rate was even at 408 after an agreement was reached in Brussels on Hungarian EU funds, bringing the country another step closer to disbursement, Portfolio reports.

No lowering interest rates yet

The MNB announced its overnight deposit quick tender on Wednesday again at 18 percent interest rate. This means that it will not change the benchmark rate. The central bank does not seem to think that the time is ripe to start slowly lowering interest rates, despite the agreement on EU funds.

Wednesday forenoon – USD/HUF surprise

On Wednesday before noon, the forint strengthened again against the euro to around 408.15, half a percent higher than on Tuesday evening. The forint then strengthened further, with the euro was trading at around 407.2 at 11:30 AM, 0.8 percent lower than on Tuesday evening. At 12:40 PM, the EUR/HUF exchange rate was even nicer: 406.8.

The strengthening of the forint against the dollar was even more impressive: the exchange rate fell to 382.

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The Hungarian forint has fallen unstoppably in recent days – is a total collapse imminent?

forint exchange rate - daily news hungary

In recent days, domestic events have been the main drivers of the forint exchange rate. Such as the abolition of the fuel price cap, inflation data, and the harsh criticism of the central bank governor. The latter had an especially great negative impact on the forint. Recessionary expectations have pushed oil prices lower, and the Hungarian market is keeping a watchful eye on fuel prices. Experts say that if prices do not lower at the petrol stations, it could be a sign of serious danger.

The forint has been hovering around the 410 level several times in the past week. It even briefly dipped below it. The Hungarian currency started Monday morning at this level, then started to weaken rapidly around 10-11 AM, in line with the speech of György Matolcsy, the central bank governor. The forint didn’t even stop until 413, Index reports.

But what did Matolcsy say that beat the forint?

According to Matolcsy, inflation is not “because of the sanctions” or “war-related”. It has been rising since the summer of 2021 due to energy prices. “We are in trouble, in many ways we are in trouble because of our own decisions,” the president of the Hungarian National Bank (MNB) said. He went on to say that there was a breakdown in economic policy coordination between the government and the central bank, which he believes is costly.

These serious statements may also have been behind the fall in the forint exchange rate.

Back to the forint exchange rate

On Wednesday, however, after the fuel price cap was lifted, the domestic currency strengthened massively, even reaching the 408 level. However, we were not able to rejoice for too long: fresh inflation data arrived on Thursday and pushed the forint lower.

According to the Hungarian Central Statistical Office (KSH), prices rose by 22.5 percent in November compared to the same month last year, Tőzsdefórum writes. This is a negative record for the EU. Gyula Pleschinger, a member of the Monetary Council of the Central Bank (MNB), pointed out on Wednesday that food prices in Hungary have a greater impact on inflation than in neighbouring countries. We have also written about this.

Unbelievably high numbers

Over the past year, household energy and food prices have risen the most, Index writes. On average, consumer prices rose by 1.8 percent in one month. The steepest price rises were for eggs (102.9 percent), bread (81.8 percent), dairy products (79.0 percent), cheese (78.8 percent) and butter and butter cream (77.3 percent).

The brutal inflation data sent the forint tumbling. From 411 against the euro in the early hours of Thursday morning to 415 in the space of 1-2 hours. With this, another wave of weakening has begun. The forint has broken through a level it had been avoiding for days: the EUR/HUF exchange rate of 415. It has even approached the 420 level! After some rebounding, the forint is currently trading around 418 against the euro.

National bankruptcy? Maybe not just yet

Although the outlook is not very positive, it is worth noting that Hungarian public finances are still very far from collapse, Tőzsdefórum reassures us. As we can follow on the website of the Public Debt Management Centre (PDMC), Hungary’s funding is still secured, even if it is at higher interest rates. Investors will therefore continue to buy Hungarian government bonds and treasury bills. As long as this remains the case, there is no realistic fear of a bankruptcy or any kind of emergency scenario.

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Hungarian currency: will EUR/HUF be 450 or 350 sooner?

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Much could be decided in the coming weeks about EU funds and central bank measures. All of these affect the Hungarian currency’s performance. Whatever happens, we will either shift towards the much coveted 350 or the much dreaded 450 EUR/HUF level.

In recent months, the Hungarian currency market has been characterised by large movements. In mid-October, the EUR/HUF exchange rate was well above 430. However, since then, we have seen a brief period of below 400. Will we end up buying EUR above or below 400 in the future? It may depend to a large extent on the fate of EU funds and confidence in the central bank, tozsdeforum.hu writes.

The fluidity of the exchange rate

The exchange rate of a currency can be determined by a number of internal and external factors. Thus, in principle, we should not be surprised by large swings in the forint exchange rate. While the current account of Hungary has improved due to the months-long decline in gas prices (which are currently rising), inflationary pressures remain very strong, tozsdeforum.hu reminds us. While international investor sentiment has become more positive in recent weeks, the Russia-Ukraine war is also prompting investors to be careful with Hungarian assets.

The drama over EU funds has been dominant

The list goes on and on. There is no doubt though that the drama over EU money has been the most dominant in recent weeks. Among other things, markets may be interested in two main things. First, how much funding Hungary will eventually receive and second, when we can expect these payments. As long as this is not clear, uncertainty may remain in the forint market. This is because market participants cannot accurately predict when the issue will be resolved.

Many factors

In addition to the above, the monetary policy of the Hungarian Central Bank and the market’s perception of it are of paramount importance. What matters is not only the specific level at which the central bank sets the base rate or the extent to which it tightens liquidity in the market. Confidence is also a key issue – investors are much less likely to take positions against the forint if the central bank is committed to financial stability.

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