A post-election recovery of the Hungarian currency lost momentum yesterday, as the first press conference of re-elected PM Gyurscány failed to impress the market and the Monetary Council acted as it was widely expected (leaving the base rate on hold). It also worth noting that bullish sentiment was undermined by a warning from Fitch Ratings. The agency urged coalition parties to scale back election campaign promises and introduce a large and difficult reform programme in order to reduce large fiscal deficit. Let us remind that Fitch was the first rating agency, which has downgraded Hungary’s sovereign rating to ‘BBB’ category (from ‘A-‘).
Regarding trading, after initial gains the Hungarian unit appeared in a neutral territory. Obviously, the EUR/HU pair found strong support at the 262.35 level. As mentioned above, PM Gyurcsány general pro-reform promises in his press conference and the interest-rate-setting meeting of the Monetary Council had negligible impact on the FX market. Hence, the EUR/HUF 262.35 support survived and the pair closed at 262.65.
While the forint will continue to monitor domestic politics, which may unveil some details of the future government programme (though coalition talks start on Thursday), the market should watch a release of the German IFO index, which will provide an updated picture of the EU business cycle. Generally, we thing that yesterday price action showed that the forint would need a stronger signal to firm further to the EUR/HUF level.
(CSOB - Investment research)