HUF Strengthens as National Bank of Hungary Implements Expected Rate Cut: Positive Outlook for Forint

HUF: Central bank cuts as expected, good news for FX

As expected, the National Bank of Hungary delivered another 75bp rate cut yesterday. After the meeting, it seems there were no surprises for the market and rates are unchanged. This is good news for the forint, which has re-established a relationship with rates over the last three days and weakened to 380 EUR/HUF before the meeting. Still, the recent rally in rates points to weaker HUF levels, though this will probably not be the case for now. A stable NBH and higher EUR/USD could offset this, plus we could see some progress in negotiations with the EU in the near term. Overall, yesterday's meeting thus seems to be positive for HUF, which will halt the weakening from recent days. In the short term, we probably need to see some catalysts for new gains, e.g. the EU story, but overall we remain positive on the HUF. If everything goes in a positive direction, then we believe EUR/HUF will move into the 370-375 range before year-end. On the other hand, the current weakness probably hasn't changed the market's long positioning much and we should still keep that in mind if bad news comes along.