Hungarian Forint: HUF outlook mixed after NBH pause – ING

ING strategist Frantisek Taborsky says the National Bank of Hungary (NBH) delivered an expected pause in rate cuts and lowered its inflation target to 2.5%, creating a supportive backdrop for the Hungarian Forint. He sees scope for further curve flattening and potential retest of 360 EUR/HUF, but stresses that global Dollar strength, energy prices and Fed hikes could easily dominate the FX outlook.

NBH stance supports but globals constrain

"The National Bank of Hungary meeting delivered exactly what the market expected – a pause in the rate-cutting cycle and a reduction of the inflation target from 3.0% to 2.5%. From the market's perspective, this was a case of ticking boxes that had been anticipated since the April general election."

"We believe the market would not hesitate to price in rate hikes at the front end of the curve if energy prices rise again and Hungarian inflation climbs in the coming months (NBH forecast of 3.1% average inflation for next year). Meanwhile, the long end still offers room for convergence trades, and long-term yields should grind lower."

"The combination of a lowered inflation target and a halt to rate cuts creates a very positive environment for the FX market. On the other hand, the global backdrop remains largely negative, despite the recent relief rally. The US dollar is at record strength, EUR/HUF remains highly sensitive to energy prices, and Fed rate hikes could trigger renewed pressure on emerging market currencies, which have shown remarkable resilience so far. "

"The overall picture is thus very mixed, and global factors could easily take the driver's seat. Although our bias remains bullish for the forint, and we could retest the 360 EUR/HUF level, further developments are heavily dependent on global factors at this moment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)