Markets

Forint outperforms on modest start of Hungarian QE, stocks mostly lower

The forint gained 0.43% on the day and traded at 348.35 versus the euro, recouping significant losses since it hit
Published May 6, 2020
  • The forint gained 0.43% on the day and traded at 348.35 versus the euro, recouping significant losses since it hit an all-time low near 370 on April 1.

BUDAPEST: The forint firmed half a percent on Wednesday and outperformed its regional peers, helped by relatively high Hungarian short-term market rates and the National Bank of Hungary's slow start of its bond-buying programme this week.

The forint gained 0.43% on the day and traded at 348.35 versus the euro, recouping significant losses since it hit an all-time low near 370 on April 1.

Policy tightening by the previously ultra-dovish central bank has helped shore up the currency, said Peter Virovacz, an analyst at ING Bank. He added that Hungarian short-term market rates were now relatively high in the region.

The euro also weakened after a German constitutional court ruled that the Bundesbank must stop buying government bonds if the European Central Bank cannot prove those purchases are needed, and this probably helped Central Europe's currencies to firm, Virovacz said.

The third factor supporting the forint was likely the NBH's bond purchases on Tuesday at its first auction, which at 50 billion forints ($154.50 million) came in below market expectations.

"At face value, what investors see is that this is not an aggressive front-loaded programme and this probably has calmed nerves," Virovacz said, adding that the central bank would likely also buy government bonds this week on the secondary market.

"But I don't think this means the forint will head towards 340 now, I expect it to trade in a range between 350 and 355 in the second quarter," he added.

"The global mood has worsened since yesterday, so it is uncertain whether the forint can break the 350-level permanently," CIB Bank analysts added in a client note.

Elsewhere, Central European stocks and currencies were looking for direction on Wednesday.

 

As countries are preparing for a gradual lifting of lockdown measures introduced to curb the spread of the coronavirus, the possibility of a new wave of infections and escalating US-China tensions still worry investors.

Stock markets in Budapest and Prague eased 0.55% while Warsaw was down 1% by 0751 GMT. Bucharest's blue chip index was up 0.9%.

The Czech crown firmed 0.1% while the Polish zloty was stable at 4.5325 to the euro.

Poland's central bank should not have cut interest rates earlier this year as the move contributed to the weakening of the zloty, which is now undervalued, Polish rate-setter Kamil Zubelewicz said in an interview.

Manufacturing surveys (PMI) across central Europe on Monday showed a grim picture, with manufacturing activity in Poland, the Czech Republic and Hungary at or near record lows.

BMW will delay the construction of its plant in Hungary as part of cost-saving efforts, the company's CFO said on Wednesday.

The Czech finance ministry will hold a government bond auction later today as it ramps up borrowing to finance emergency measures aimed to ease the economic effects of the coronavirus pandemic.

"MoF has already covered 90% of their financing needs," Komer?ní banka said in a client note.

"Assuming however the final deficit would match the latest prediction of 300bln CZK this year, probably that number would eventually be amended upward."

 

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