Forint jumps amid tight liquidity, markets eye EU budget talks

BUDAPEST: Central European currencies firmed on Tuesday with the forint outperforming its peers and adding half a percent in an illiquid market as investors were eyeing developments in an European Union budget dispute between Brussels and Budapest.

The Hungarian forint was up 0.53% on the day, trading at 357.40 versus the common currency by 1003 GMT.

With no major news to move the currency on Tuesday its gains were likely due to a single bigger trade as liquidity was tight, two Budapest-based traders said.

"The market is waiting for the next steps in the EU budget crisis," one trader said.

Poland and Hungary are blocking about 1.8 trillion euros worth of EU funds, including hundreds of billions due to be disbursed soon to help pull the 27-country bloc out of a double-dip recession caused by a second wave of COVID-19.

Ahead of next week's EU summit, their two prime ministers met in Warsaw on Monday after meeting in Budapest last week.

The forint has underperformed its peers recently after Hungary and Poland pledged to veto the EU's budget and coronavirus rescue package because funds were tied to rule-of-law conditions.

The Czech crown was up 0.22% and trading at 26.219 while the Polish zloty edged up 0.04% to 4.4775 per euro.

The region posted fresh PMI and GDP data on Tuesday, showing the economic effects of the second wave of the pandemic which hit the region harder than the first.

November PMIs in the region "confirmed a positive momentum and good robustness of the manufacturing," Erste Bank wrote in a note.

Czech manufacturing business sentiment reached its highest point since August 2018, with the Markit Purchasing Managers' Index (PMI) coming in at 53.9.

Poland's PMI for manufacturing reached 50.8 in November while Hungary's seasonally adjusted PMI rose to 51.9, the seventh-lowest reading for the month.

Stock markets in the region firmed, with Warsaw leading gains by adding 1.41%. Budapest was up 0.89%, while Prague strengthened 0.25%. Markets in Romania were closed for a national holiday.