Forint Snaps 7-Day Slump on Bets Drop Overdone: Budapest Mover

The forint rose against the euro for the first time in eight days as technical indicators showed it may have fallen too far too quickly.

Hungary’s legal tender gained as much as 0.4 percent before trading 0.1 percent higher at 302.53 per euro at 5:30 p.m. in Budapest, ending a 1.4 percent drop over the past seven days. The currency pair’s relative strength index dropped to 31 yesterday, approaching the 30 level that some analysts see as a buy signal. The yield on Hungary’s three-year notes fell seven basis points to 3.54 percent, a record low on a closing basis.

The forint dropped yesterday to its weakest level against the euro in a month, as the Magyar Nemzeti Bank lowered its benchmark interest rate by 15 basis points to an all-time low 2.85 percent and said the outlook for inflation and economic growth allowed “for further cautious easing of monetary policy.” Rates may fall to as low as 2.5 percent, President Gyorgy Matolcsy said in a HirTV interview on Dec. 21.

The currency “market has captured the central bank’s intention to keep going on with its easing cycle,” Abbas Ameli-Renani, an economist at Royal Bank of Scotland Group Plc in London, wrote in an e-mail. “We think it may be time for a correction.”

Ameli-Renani predicts the forint will strengthen to 294 per euro within a month.

Citigroup Inc., the most accurate forecaster over the past four quarters, according to Bloomberg Rankings, sees the forint weakening to 310 per euro in 12 months amid record-low rates as Hungary’s government pushes to stamp out foreign-currency mortgages. Goldman Sachs Group Inc. also expects the forint to weaken this year.

Policy makers are demonstrating an “increased preference for forint weakness,” Magdalena Polan, a London-based economist at Goldman Sachs, wrote in a Jan. 16 note. “A comprehensive solution to the FX debt problems would lead us to expect an even weaker forint.”

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