Hungary’s forint has been downgraded
The forint had an excellent week, the quotation against the euro was still around 400 on Tuesday afternoon, then the impact of the MNB’s interest rate decision (in which the central bank increased its required reserves) and the integration into the international environment (declining gas prices, which price the Fed’s interest rate peak) became stronger the forint started to strengthen against the euro to 386 during the week. It’s weakening a bit this morning, but it’s still well below the level from earlier this week, around 388.
During the week, the forint was an outperformer, in our region there is no such strengthening of any other currency. This is not surprising, since the forint was an underperformer last year, but now it has much more room for strengthening, and the Hungarian interest rate premium is also more significant than in the rest of the region.
The dollar is slightly stronger against the euro today, and this is due to the strengthening of the forint, but we do not see a big shift, and today’s strengthening of the dollar is more of a correction after the significant weakening of the previous weeks than a reversal. Investors are waiting ahead of next week’s central bank events.
Thus, the forint is also weakening against the dollar today, but it is also true for this currency pair that this week we see a significant strengthening in favor of the forint, so with today’s 0.3% shift, the overall picture for the week is almost unchanged.
Today, we do not expect any important market-moving news from the international level. Although the personal consumption price index (PCE) is coming from the USA, which is the most important inflation indicator for the Fed, the announcement for December may be preceded by the announcement of the consumer price index (CPI), which has already had an impact on the markets. PCE can only bring movement if for some reason it deviates well from CPI, but this is not typical.
S&P’s review of Hungary, on the other hand, involves significant movements, especially if the credit rating agency issues a stricter or milder verdict on the country than expected. This happens already after the market closes, and although the foreign exchange market does not close, the turnover tends to decrease along with the decline in stock market affairs, i.e. tonight’s decision may be felt more in next week’s trading than the immediate movements.
Next week will be very busy now because of other things.
The two largest central banks, the ECB and the Fed, will also hold interest rate meetings next week. The Fed will slow down the pace of interest rate hikes (to 25 basis points), and the ECB will stick to strictness, so the euro will continue to strengthen against the dollar, and this may also give the forint additional strength. But the Fed has already surprised us many times (because of its shell), so in case of a strong message and a 50 basis point increase, serious movements can come on the foreign exchange market.
Of course, let’s remember that even today is just the beginning, and countless unforeseen events can happen, to which investors will react violently.
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