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

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.

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“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.”

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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.