The Hungarian forint firmed a touch on Thursday, lacking any important domestic or external impetus during the session changeable. The unit eased in the morning up to EUR/HUF 267.60, but bounced back quickly and than hovered around EUR/HUF 265 level. Though Hungarian markets stays jittery on negative sentiment towards emerging markets, the Hungarian FX market looked surprisingly calmer than its Polish counterpart.
Interestingly, yesterday’s press reported that a written draft of government program has been finalized while compromise has been agreed on health care reforms and educational issues. According to local media the government may propose tax hikes and spending cuts, which would generate cumulative savings up to HUF 900 bn (around 4% of GDP). Nevertheless in our view this preliminary information will not likely counterbalance an impact of dominant external factors. Still, concrete details of fiscal adjustments will be very important for investors – they should be published at the end of May or beginning of June.
Thus the short-term uncertainty may linger. Continued sell-off in the US stock markets coupled with ongoing weakness of the Turkish lira and Icelandic crown indicate that bearish sentiment will not disappear from the Hungarian FX market soon. Hence, we might experience another roller coaster session, though the recent drop in US and euro bond yields might provide some support for all CE FX markets.
(CSOB - Investment research)