The forint did not move significantly in Monday’s illiquid trading. On Wednesday, however, there was bad news regarding EU funds.
The Hungarian government did not meet the requirements for the use of EU funds, so according to the statement of the spokesperson of the European Commission, it will lose the first installment of 1.04 billion euros.
Our country also lost access to the resources of the National Reconstruction Plan, so it was in a difficult financial situation. Hungary is currently the only EU country that cannot benefit from funds from the European economic recovery plan. Zoltán Varga, Equilor Befektetési Zrt. according to his senior analyst, this development was not unexpected. On Thursday and Friday, however, the forint weakened intensively against both the euro and the dollar.
Meanwhile, the euro-dollar exchange rate reached its lowest point in more than two years, as a result, the dollar-forint quote crossed the 400 level, the last time it was at such high levels at the end of 2022
Zoltán Varga told Economx. The weakening of the forint reached its peak on Friday afternoon, temporarily 416 forints had to be paid for one euro and 405 forints for one dollar.
Image: euro-forint exchange rate
The Hungarian currency receives slaps from all sides
As we wrote earlier, the development of yields also plays a role behind the strengthening of the dollar, the one-year US Treasury bill now yields 4.17 percent, the same in HUF 5.24 percent.
In addition, expectations related to monetary policy strengthen the US dollar: the Fed can wait to cut interest rates at the beginning of the year, while euro interest rates will move downwards.
The latest statements by the decision-makers of the European Central Bank make it likely that the interest rate reduction will continue, while the MNB may pause the relaxation for several months. This should help the forint, but the soaring dollar puts smaller currencies under pressure
Erste commented on the substantial weakening of the forint on Friday. It is worth noting that in December, the Fed thoroughly surprised the markets when it projected only 2 interest rate cuts for 2025 instead of the expected 4, which then led to a significant weakening of the forint.
The forint is not helped by the lower domestic interest rate, the slowly growing economic performance, the skyrocketing budget deficit, or the news about the loss of EU funds.
The Hungarian currency is also not pushed in the direction of strengthening by the fact that the promises made by the elected US President Donald Trump in the campaign – the introduction of protective tariffs, economic stimulus measures – could potentially cause higher US inflation, thus a stricter monetary policy, and an overall stronger dollar. And in his statements, he regularly confirms that the previously promised customs duties will come soon.
Expert: The technical picture of the forint has deteriorated significantly
Next week there will be several events that can move the forint price, among which it is worth highlighting:
- the Fed minutes coming on Wednesday evening,
- and the afternoon ADP employment data,
- then on Friday, comprehensive labor market data will arrive, which may have an impact on the dollar market.
The Central Statistical Office will publish the November producer price index on Tuesday morning, followed by the industrial production and retail data series on Thursday morning.
The technical picture of the forint has deteriorated significantly, the range of 408-420 for the euro-forint exchange rate and 390-410 for the dollar-forint may be reached in the next period
Zoltán Varga told our newspaper. We can already see that 2024 was not the year of the forint, and we can guess what factors may determine its performance in 2025. The development of the Russian-Ukrainian war, our relationship with the European Commission, the issue of EU funds, the development of exports (including the growth of the German economy and the demand for vehicles), the change in balance indicators, the international environment, and the domestic and international change in monetary policy.
In a previous article with Zoltán Varga, we examined the performance of the forint in 2024. We found that the domestic currency had a bad year, it weakened significantly against the major currencies. You can read our analysis by clicking here.
Source: www.economx.hu
