The Hungarian forint strengthened versus the US dollar on Tuesday. The US dollar forint exchange rate declined 0.3% to close at 298.87. The forint is paring those gains in early trade on Wednesday. At the time of writing the pair was trading 0.3% higher at 299.38.
The US dollar traded broadly flat versus its peers, albeit weaker versus the forint in the previous session as investors digested US inflation data and looked ahead cautiously to the signing of the US – China trade deal.
US inflation increased 2.3% compared to the previous year in December, which was a touch softer than analysts had been expecting. Core inflation, which excludes more volatile items remained steady at 2.3%. However, with wage growth moderating in recent months to 2.9% there is a squeeze on incomes and household spending power. Weaker spending power could curb consumer spending and weigh on GDP growth should the trend continue.
Today investors will be focusing almost solely on the signing of the first phase US – China trade deal. The White House announcing that it will not reduce tariffs on Chinese imports until after the US elections dented sentiment ahead of the signing.
The details of the deal have not yet been made public. Investors are trading cautiously ahead of their release and will pour over them to asses whether the trade deal goes far enough.
Strong Inflation, Slowing Construction Output
The forint was on the front foot in the previous session after Hungarian inflation data showed that consumer prices had increased by more than analysts had forecast in December. Inflation increased 4% year on year, up from 3.4% in November and ahead of the 3.9% analysts had pencilled in. Strong inflation often encourages a central bank to raise interest rates to keep inflation under control. However, the National Bank of Hungary have indicated that they intend to keep rates low across for the foreseeable future.
Today the forint is paring yesterday’s gains following weaker than expected construction figures. Construction output increased 6.8% year on year in November. This was significantly below October’s 20.5% increase. Growth in the sector is expected to ease across the coming year, contributing less to economic growth than it did this year.