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Hungarian Forint Falls to Historic Low

Péter Cseresnyés 2019.08.30.

Hungary’s national currency hit an all-time low against the major currencies in the early afternoon on Thursday. Euro quotation rose above 331 forints, reaching the 331.87 mark, which is the weakest exchange rate of the currency to this date.

The strong losses in the Hungarian Forint came as no surprise as it has already neared an all-time low against the euro on Wednesday, hovering around 330, just a hair away of its 330.75 record low.

The last time, the EUR/HUF exchange rate went above 330 was at the beginning of July last year, while on 2 July 2018, the euro rose to 330.77 HUF. The dollar’s quotation also rose above 299 HUF,  while the Swiss franc reached the 305 HUF exchange rate on Thursday afternoon.

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According to economic news site portfolio.hu there are several reasons for the record low forint. The fears of no-deal Brexit, US-China Trade War and the German recession are all contributing factors. Meanwhile, Hungarian assets have one of the highest negative real interest rates amongst emerging markets. Lastly, the market players do not expect the MNB to raise interest rates in the near future as the inflation is at a tolerable level, which also weakens the HUF exchange rate.

Answering questions shortly before the forint fell to a historic low, the Hungarian National Bank told Reuters it has no exchange rate target.

“The exchange rate influences the central bank’s assessment of the situation indirectly, fundamentally via its effect on the inflation and economic outlook”, the Central Bank added.

As Financial Times points out, the Hungarian National Bank has been on a dovish stance at a time of loosening monetary policy among major central banks. The NBH has kept the rates unchanged since May 2016, when it cut the main rate 15 basis points to 0.9%.

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While the forint is exposed to global trends and the effects of a loose domestic monetary policy, Hungary’s strong economic performance and stringent fiscal policy keep government bonds attractive enough to keep yields near all-time lows, Reuters says.

Based on the exchange rate chart of the last 8 years, Portfolio.hu’s technical analysis predicts that the weakening of the forint may be over at 332. If we go back further in time then this number might be 337. The dollar exchange rate will be between 302- 330.

Featured photo via pixabay.com