What happened? The Hungarian forint lost two weeks of strengthening in hours

In the past two weeks, the Hungarian forint has been doing exceptionally well, strengthening to annual highs. However, this fragile trend was broken on Wednesday. The Hungarian currency lost two weeks of strengthening in just hours.

An unexpected surprise from the central bank…

As we reported on Wednesday, an interview with the vice-president of the National Bank of Hungary knocked down the forint. Barnabás Virág told Világgazdaság that “extreme risk scenarios have been priced out, there is no longer a need to maintain such a large margin, so a decision on a more significant narrowing of the upper end of the interest rate corridor could be taken at next week’s Monetary Council meeting.”

…rapidly depreciating forint

So, on the news that the central bank may touch the upper end of the interest rate corridor as early as next Tuesday’s meeting, the forint seemed to have taken a real tumble. From close to 371 on Wednesday morning, the forint fell to 377.5 against the euro and to 345 against the dollar by midday, Portfolio writes. This happened right after the forint hit a new one-year high just yesterday. The central bank’s surprise statement seems to have been received sensitively by investors.

Plans about changing the upper end of the interest rate corridor

The upper end of the interest rate corridor has been 25 percent since October last year. This signalled to investors that the central bank was ready to raise the 18 percent overnight deposit rate even further if necessary. However, the effective rate hike from 13 percent to 18 percent stopped the forint from plummeting at that time and started to strengthen the it, Portfolio explains. This strengthening trend has essentially been going on since then. This led to the forint strengthening to 370 against the euro on Tuesday, a one-year high.

The forint could only minimally strengthen afterwards

Then, after Mr Virág’s statement, this changed. On Wednesday, the forint even briefly rose above 380. On Thursday morning, the Hungarian currency was trading around 379 against the euro. By early afternoon, the forint was already strengthening, with the euro trading at around 377.15 at 1.14 PM, almost half a percent lower than on Wednesday evening. There were minimal movements in the foreign exchange market in the evening hours on Thursday, with the forint standing at 377.2 against the euro at 9 PM.