As we expected riots in Budapest led to
sharp forint’s weakening. Nevertheless, the
EUR/HUF 275.0 resistance worked quite
well, so the pair has not managed to brake
above this level so far.
This night was calmer in Budapest, may be
because of strong calls from the president
and prime minister, who said that the events
that took place at the building of the
Hungarian Television headquarters in the
early hours on Tuesday constitute criminal
action. Meanwhile, PM Gyrcsány, who is still
considered as a guarantee for fiscal
consolidation, said that he would not resign.
In this respect its worth adding that S&P
rating agency has already warned that antigovernment
protest could weaken government plans to pursue (fiscal) reforms,
which could possibly lead to a downgrade of
country’s credit rating. On the other hand,
the agency said that the protest would not
have an impact „per se“ on the rating.
Though it seems that the situation has
calmed down a bit, in our view it is too early
to bet on forint’s recovery. A big student
demonstration is scheduled for Thursday
against the government's plans to introduce
tuition fees in higher education from 2008
and this can bring new violence and political
uncertainty to Budapest.
The forint faced strong sell-off following
Tuesday early-morning riots (EUR/HUF
intra-day).
(CSOB - Investment research)