USD/HUF: Hungarian Forint Slips Ahead Of NBH Rate Announcement

Improved risk sentiment sent the US dollar lower versus the Hungarian forint at the start of the new week. Th US dollar Hungarian forint exchange rate slipped to a low of 294.32 before closing the session at 295.21.  The pair is advancing in early trade on Tuesday.

Strong than forecast Chinese manufacturing and retail sales data helped calm concerns over a slowdown in the world’s second largest economy. This, combined with a phase one trade deal agreement between the US and China, served to boost risk appetite, even though the deal is short on detail. With risk appetite running high, the US stock markets hit a fresh all time high and demand for the safe haven dollar declined.

US private sector activity data had little impact on the US dollar. Manufacturing activity decreased to 52.2 in December, below analysts’ expectations of 52.6. However, activity in the dominant service sector expanded by more than expected, showing resilience in the sector.

Today investors will continue to assess the health of the US economy today with the release of manufacturing and industrial production in addition to house starts and building permits. Analysts are expecting to see a rebound manufacturing and industrial production after months of sluggishness. Strong figures could help lift the dollar.

NBH To Keep Rates On Hold?

Today the National Bank of Hungary (NBH) will give its monetary policy announcement. Hungary’s central bank is broadly expected to keep monetary policy unchanged. Analysts predict that the base rate will remain at 0.9%, whilst the overnight deposit rate will be kept at -0.05%. Market participants do not foresee any change in the base interest rate until the end of 2021 when the rate could increase to 0.95%. The overnight deposit rate is forecast to increase by 15 basis points 0.1% by the end of next year.

The central bank will also unveil key economic forecasts in its closely watched quarterly inflation report. Headline inflation increased 3.4% in November, whilst core inflation which strips out more volatile items remained steady at the top end of the central bank’s 2%-4% target. Recent developments still favour the banks “wait and see” approach. As a result, the forint’s reaction could be limited.

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