USD/HUF: Dollar Drops On Fed’s Inflation Concerns

The US dollar fell sharply versus the Hungarian forint on Wednesday. The US dollar forint exchange rate recorded a 0.4% decline, closing the session at 296.61. The dollar is extending those losses in early trade on Thursday, setting the pair up for the third straight session of declines.

The dollar was out of favour across the board on Wednesday following the Federal Reserve monetary policy announcement and press conference. As expected, the Fed kept monetary policy on hold. However, a more dovish than expected Fed sent the dollar lower. The Fed’s concerns over inflation and the health of the global economy unnerved investors. Jeremy Powell said that the central bank would need to see significant and persistent increase in inflation in order to consider hiking interest rates. Furthermore, the dot plot, which sets out the future path of interest rates showed that there was no change to policy planned for 2020 election year.

Following the impressive US labour market data and an uptick in inflation investors had been hoping for a more hawkish Federal Reserve.

Tensions surrounding US — China trade will continue to keep investors on edge today as they look for signs as to whether the Trump administration will impose tariffs on an additional $100 billion of Chinese imports on 15th December. So far messages have been mixed as to whether they will go ahead. The final decision rests with Trump.

Forint Advances After GKI GDP Upgrade

The Hungarian forint continued to benefit from stronger than forecast inflation data released earlier in the week. Additionally, the forint was in demand after economic research institute GKI upgraded its Hungarian GDP growth forecast for 2019 to 4.9%. This is one of the fastest growth rates of the EU. Although the institute also forecast that the rate of growth would ease slightly to 3.3% in 2020.

Forint investors will now switch their attention to the European Central Bank monetary policy announcement. The ECB is broadly expected to keep interest rates on hold in Christine Lagarde’s first meeting as Governor of the central bank. Since taking over on 1^st November, Christine Lagarde has said very little about monetary policy. Whilst analysts don’t expect the statement to change substantially, market participants will be paying close attention to her style and language in the question and answer session.

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