Alpár Kató | Dec 8, 2018 | 2
You would not have thought but this is why the forint is falling
According to Index.hu, it is not Hungary who stands behind the falling of the forint but the euro. However,behind the weakening of the euro, there are a lot of things: the D-word horror, big plans of the EU and the left turn in Greece. Index.hu collected these reasons.
On Monday morning, the forint started to fall, one euro was more expensive than 320 forints, the exchange rate has not been so weak for 3 years. The exchange rate was also above HUF 320 on Tuesday and Wednesday. Now, the situation is more complicated than we could blame Orban, Matolcsy, Gyurcsany or the Bilderberg group.
Analysts say that the investors had problem with the euro, and the economies of the EU members depend heavily from the eurozone so the fears spread to the other European currencies, such as the forint. Indeed, if the eurozone is weakening, it has a good chance to pull us itself too.
The euro is falling
The most noticeable trend of the entire foreign exchange market turmoil is the rough weakening of the euro against the dollar. It has good reasons and it is also bad for us.
But why could we lose this? And why is the dollar strengthening?
Starting with the latter: the American economy is pulling itself together. In the quarter, the American economy grew 5%, while unemployment is beginning to return to pre-crisis level. The FED, the American central bank plans to raise the base rate from mid-2015, so they want to withdraw money from the economy.
Other major economies’ central banks are doing the opposite: the Japanese central bank is pumping yen to the economy by bond purchases, and the European Central Bank will decide on January 22 about starting a bond-purchase program, which was discontinued by the Americans recently. The success of the programs is questionable, so it can boost the dollar more against the euro, Index.hu says.
And why is it bad for us? Because a very big part of the world’s savings are held in dollar, and the strengthening of the dollar is not good for those who have money in other currencies. This could also hurt the Templeton fund, which finances a quite large amount of the Hungarian government debt and failed $ 800 million when forint weakened recently.
The D-D-D is coming
This is the deflation, which is bad because people do not want to spend their money since it will worth more tomorrow. When people do not buy things, there will be no demand for goods and services which in turn there will be no increase, too.
On the other hand, it is also bad for the debtors and the companies. The former have to pay back more interest in real terms. And it will be not worth for the companies to invest, Index.hu says.
The situation can be the similar in the EU, because prices decreased in the eurozone in December, and if it remains so, it will be deflation. According to statisticians, it is due to the drop of the oil prices. Because of this, the ECB started a bond purchasing program to boost inflation and the European Commission created a EUR 315 billion investment fund.
Economists think that the program of the ECB will not be succesful, but a lot of depends on the details.
It seems that the radical left Syriza will win the Greek elections. The party would re-negotiate the government debt, so a lot of bond holders could lose money. Merkel said that the Greek could leave the eurozone, but then, other Southern eurozone members could leave the zone, but is not likely. However, Alexis Tsipras, leader of the Leftist party said they would not leave the eurozone. But the party will need money for the measures, and Tsipras could only hope that the government debt can be paid back for a longer term, debt cancellation is unlikely, Index.hu says.
What will be with the Southern members?
According to Andras Balatoni, analyst of ING, restrictions of the Southern states will make no sense anymore. He said that the Greeks should make a neutral budget. He also thinks that Spain and Portugal could end the austerity measures because the 10-year government bond yields are fewer than 3%. Now the Commission and the ECB should help them.
But it is effective only in short-term. They have to implement reforms, if they want a long-term growth.
based on the article of Index.hu
translated by BA