euro FX

More Currency Wars: Forint Plunges As NBH Loses Patience

"Closely examining the application of our tools"

Ok, who was short the forint going into today?

EURHUF exploded higher on Thursday after the National Bank of Hungary told Bloomberg, in response to e-mailed questions, that the central bank is “closely examining the possibility to apply further unconventional policy tools.”


Apparently, a change in the final sentence of the statement that accompanied the bank’s decision to keep rates unchanged at a record low (for the 15th straight month) telegraphed an unambiguous change in the policy lean.

The forint had hit a two year high against the euro, extending gains catalyzed by ratings upgrades (back to investment grade at Fitch, Moody’s and S&P last year) and generally strong sentiment around the broader emerging-market rally.

“The central bank comments likely intended to signal central bank’s unease with forint moving beyond 302/EUR,” Raiffeisen analyst Gergely Palffy said on Thursday.


Needless to say, this is just another chapter in the ongoing global currency wars and is indicative of the push-pull dynamic between central banks, who are engaged in what looks like a never-ending quest to anticipate and/or react to one another.

For those interested, here’s a full recap of analyst coverage compiled by Bloomberg:
  • ING (strategist Petr Krpata and analyst Peter Virovacz)
    • With the cross now breaching the central bank’s “pain threshold”, we see downside to EUR/HUF as limited from here as we expect the NBH to do more
    • Given the growing long HUF positioning in past weeks on speculation about NBH running out of firepower, we see the cross vulnerable to a short squeeze in coming months
  • Citi (analyst Eszter Gargyan)
    • Although the NBH is refraining from explicitly mentioning a FX level, we believe the current EUR/HUF level is below the NBH’s comfort zone due to adverse implications for exporters and revaluation of FX reserves
    • Ultimately, the NBH needs to generate capital outflows to prevent further FX strength as it refrains from building FX reserves via outright purchases
  • KBC (analyst David Nemeth)
    • The central bank seems to be prepared to inject as much forint as needed into the economy to weaken the currency
    • Policy makers will cut the volume of three- month deposits to zero during the fall and switch to a new benchmark early next year; that may be a repo or lending facility
  • Morgan Stanley (strategist Min Dai)
    • Given how much HUF has appreciated to date, there is room for some reversal in HUF appreciation in response to dovish rhetoric from the NBH, particularly given the limited evidence that additional easing is required for the economy
    • Marginal incremental dovishness from NBH will flatten the forint rate curve
  • Raiffeisen (analyst Gergely Palffy)
    • Central bank comments likely intended to signal its unease with forint appreciating beyond 302/EUR
    • It’s uncertain whether the central bank will actually deliver on signal for further easing, or only continue reducing three-month deposit cap next month, which is largely priced in the market

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