Forint exchange rate: Hungarian currency at an alarming 6-month low

The forint exchange rate hit a dramatic milestone this Tuesday, not witnessed since the beginning of October. It’s been affected, in part, by the crisis in the Middle East.

Világgazdasá reported that the forint depreciated to a six-month low against the dollar at the beginning of the week, with one dollar fetching HUF 372.5. Additionally, the euro-forint exchange rate has also surpassed 390, approaching 395 on Tuesday.

The sterling performance of the dollar greatly impacts the forint exchange rate

Foreign exchange markets may be feeling the strain as the yield on the 10-year United States government bond rose to a record high this year, currently standing at 4.6 percent. The stellar performance of US bonds applies pressure to foreign exchange markets. Furthermore, for investors, the recent better-than-expected growth in the retail sector forecasts a sustained increase in interest rates in the United States.

In addition, the reduction in investor risk-taking due to the crisis in the Middle East also bolsters the dollar’s performance. Világgazdasá suggests that if tensions were to ease in the Middle Eastern region, investor appetite for risks may increase, leading to a favourable turn for the forint exchange rate.

The Hungarian forint has some stormy months behind it

As we reported in multiple articles, the Hungarian forint experienced turbulent months at the onset of 2024. In February, it plummeted at a rapid pace, with the EUR/HUF exchange rate reaching 394, and the USD/HUF depreciating to 362, following interest rate cuts by the Hungarian Monetary Council.

It hasn’t helped the forint exchange rate that György Matolcsy, Governor of the Hungarian National Bank (MNB), sharply criticised the Hungarian government in March this year, alleging that Minister of Economic Development, Márton Nagy, was deliberately trying to undermine the central bank’s independence.

The dispute between the two institutions, largely rooted in the personal feud between Matolcsy and Nagy, hasn’t bolstered investor confidence in the forint. Consequently, economists cautioned that escalating tensions between the National Bank and the government could result in discord in effective policymaking, further weakening the forint exchange rate.

As we wrote in this piece, “analysts at the Egyensúly Institute [an independent Hungarian policy think tank – ed.] have forecasted that the Hungarian forint will likely remain above the 400/EUR threshold in 2025.”

Read also:

Horror at Hungarian petrol stations: price rise continues with petrol at 6-month high – HERE

Big change: 50,000-forint notes to be introduced? Central bank governor answers – Read HERE

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