BUDAPEST/WARSAW: Hungary’s forint ended 2020 down nearly 10% against the euro, losing more than any other currency in emerging Europe even as the Polish zloty weakened considerably in the last trading sessions amid talk of central bank interventions.
As everywhere, the Covid-19 pandemic set the tone throughout most of the year, with currencies first hammered in March, when the coronavirus reached the region and lockdown measures sent economies into a massive contraction.
Of the three most liquid currencies in the region, the Czech crown recovered the most of those losses, ending the year down about 3.4%, according to data at 0920 GMT. The Polish zloty was down 7.5%, plunging at the end of the year as the National Bank of Poland intervened in the foreign exchange market on Dec. 18 to weaken the zloty and thereby support Polish exports. The currency weakened by as much as 1.77% on Tuesday, raising speculation that the central bank was intervening in the FX market again. Reuters could not confirm that. “It’s very volatile, there is very low liquidity, probably the national bank is asking for prices,” said a Warsaw-based currency trader. “Today I haven’t seen (the central bank) ... or maybe there is some position squaring at the end of the year.”
Political risks also weighed on the forint as Poland and Hungary threatened to veto the European Union’s 1.85 trillion euro ($2.27 trillion) budget and coronavirus rescue package over rule-of-law conditions on accessing those funds. According to a Reuters poll of analysts, the Czech crown and the Polish zloty are expected to lead central European currencies higher in the next year as the region recovers from the pandemic.
In the poll, conducted before central bank interventions were made public in Poland, the zloty was expected to strengthen to as far as 4.37 against the euro, which would be a 5% gain from Thursday’s levels.
Analysts expect the Czech crown to firm to 25.80 over the next year, or 1.9% from Thursday’s level. The Hungarian forint is also expected to firm 1.9% from Thursday’s level to 358.00.
“A strong growth recovery (3.5-4% in 2021-2022 across the region) with the tailwind of the EU budget bodes well for CEE3 currencies,” Bank of America wrote in a note. “We expect an additional 3-5% appreciation of CEE3 currencies vs EUR in 2021.”
The National Bank of Hungary (NBH) has said it would hold foreign currency swap tenders at the end of each quarter if needed to reduce market volatility.—Reuters
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