The Hungarian forint tested the key level of 265.00 this morning, which could be a strong resistance level of the current appreciation trend. It seems that high-yielding currencies, including the forint enjoy decent demand from investors amid the current low volatility environment.
On the bond market, the long-end has been performing well with the 5y5y forward swap spread narrowing also to a 1-year low of 267bps. A similar trend is taking place with the CDS of Hungary, which is now trading below 250bps as investors feel safer about the financing of the government’s external debt since the issuance of $3.75bn Eurobonds.
The Polish zloty stayed more or less unchanged on the eve of the Monetary Policy Council’s (MPC) rate decision. The EUR/PLN currency pair remained well above 4 EUR/PLN level.
We (as well as the most of analysts) expect, that the interest rate could be increased today by 25 bps to 4%. Nevertheless, governor Belka’s comments were far less clear-cut than in the case of the previous hike in January. Hence, we think that the result is not as certain as the Reuters poll of analysts could suggest. A prospective rate hike should bolster the zloty and the EUR/PLN currency pair might dip back below 4 EUR/PLN level. On the other hand, if the interest rate remained unchanged, the zloty could further weaken due to the fact that the ECB will probably increase interest rates this Thursday.