HUF: Weaker Levels Present Market Opportunity

HUF: Weaker levels are an opportunity for the market

Today, the only major event in the CEE region is the meeting of the Hungarian National Bank. Indicators of external balances are improving, while disinflation accelerated in May. This looks like a perfect setup for a “copy-paste” decision. We see 100bp of cuts to the top-end of the interest rate corridor and to the overnight quick deposit rate. The forward guidance and the tone will remain unchanged as well, in our view. This means that the approach remains cautious and gradual and the decisions ahead are still data and sentiment driven with the base case.

The Hungarian forint has been trading above 373 EUR/HUF for the last few days, the weakest since April. However, the main driver seems to be the current jump in gas prices. However, these have been falling again in recent days. Moreover, we think the market likes the normalisation story of monetary policy in Hungary, which will again attract the market to buy the forint. By far the highest FX carry in the region is still a key benefit here and we expect weaker forint values to offer an opportunity for the market to build long positions again. Overall, we thus expect the forint to return to 370 EUR/HUF, which is near the lower end of the 368-378 EUR/HUF range we expect for the rest of this year.