ING’s Frantisek Taborsky notes the Hungarian Forint is testing new highs as EUR/HUF trades near two-year lows ahead of expected NBH rate cuts. With two 25bp cuts already priced for February and March, he sees any Forint weakness as a buying opportunity, though acknowledges that rate cuts are negative for carry and may eventually slow further EUR/HUF downside.
EUR/HUF strength into NBH easing
“The forint tests new highs ahead of the NBH cutting cycle restart, supported by global risk-on sentiment for EM currencies but also market pre-election positioning. EUR/HUF near two-year lows clearly gives NBH the green light to cut rates. At the same time, given the fully priced-in two cuts for the next couple of meetings in February and March, and more later, it suggests that the forint should not be too damaged next week if the central bank indeed delivers a rate cut.”
“At the same time, the market has repeatedly shown its intention to fade any upward correction in EUR/HUF, and we therefore believe that any weakness in the forint could serve as an opportunity for new long positions. Still, rate cuts are a negative signal for carry, and we expect that although we may see more gains before elections in April, the further path of EUR/HUF down will be lower.”
“As investors continue to pour money into emerging markets this year, EM currencies have been more stable than those in developed nations. This clearly favours a continued support trend for the Hungarian forint, with the carry trade remaining favourable even if cuts are on the horizon.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)