The US dollar is higher against the Hungarian forint on Wednesday morning as markets cautiously position for the forint to weaken towards new record lows. Stocks in Hungary were trading higher alongside European indices as markets brushed off news that the coronavirus from China could mutate and has spread as far as the United States.
USD/HUF was higher by 46 pips (+0.15%) to 302.06 with a daily range of 301.04 to 302.15 as of 10am GMT, taking the currency pair back off lows of this week at 301 and towards Tuesday’s peak near 302.5.
The Forint saw another burst of strength on Tuesday afternoon, taking the USDHUF currency pair back down to support near 301. The Bank of Hungary, the nation’s central bank has been “draining liquidity” meaning taking some of the currency out of the system.
Central banks typically use open market operations with government bonds to control liquidity, or the amount of money in the system. If the central bank wants to add liquidity it will buy government bonds with currency that it in effect prints. And vice versa, the central bank will sell government bonds and take the proceeds of the sale out of the system. The actions from the Central Bank of Hungary were probably an effort to stop, or at least slow the depreciation of the Hungarian currency.
The renewed weakness in the forint today in part reflects the weak fundamentals in Hungary. Economists are still expecting inflation in Hungary to rise but by contrast the central bank has so far offered no hints that it plans to raise interest rates to combat that higher inflation.
Later today, we see the release of retail sales and housing data from the US. The Redbook index showed annual retail sales growth of 5% in December with monthly data showing a -0.2% contraction. The Housing Price index is expected to show a 0.2% rise November, the same pace as the month prior. Existing home sales for December are forecast at 5.43M, up from 5.35M in November.
