After an initial negative correction following a release of the April larger-than-expected foreign trade deficit the Hungarian forint continued to hover close the EUR/HUF 260 barrier awaiting the FOMC meeting. The Hungarian unit became a little bit nervous at the end of the session since the HUF as a prominent emerging markets’ high-yielder could be hurt badly, if the Fed was issued more hawkish statement than markets expected. It actually happened since the FOMC indicated that some further policy firming may yet be needed, which implies that the Fed could still deliver one more one hike and a pause in the current tightening cycle is not a done thing. Hence, as expected the forint has appeared after modest downward pressure after today’s opening.
Today, the FX market will definitely monitor a development in the domestic bond market since there are release of the April CPI and tender of 5Y and 10Y government bonds. Hence, the forint should follow domestic bonds today, while a development in core bond markets could be a negative factor. EUR/HUF gets volatile ahead and after FOMC meeting.
(CSOB - Investment research)