The US dollar is higher against the Hungarian forint on Wednesday morning after the Hungarian central bank kept interest rates unchanged. Later today is the monetary policy decision by the US Federal Reserve and it is widely expected that the Fed will also keep interest rates on hold.
USD/HUF was higher by 27 pips (+0.08%) to 306.76 with a daily range of 306.2 to 307.48 as of 10am GMT. An early rise above 307 was quickly sold but the currency pair remains close to its year-to-date highs.
The Federal Reserve should announce today that interest rates will remain on hold at 1.50-1.75% and its economic forecasts are not due to be updated this month, so all the emphasis will be placed on the speech given by Chair Jerome Powell afterwards. It will not a desirable result in all quarters. US President Trump tweeted “The Fed should get smart & lower the rate to make our interest competitive with other Countries that pay much lower”.
It is too early for the Fed to react by lowering interest rates to protect the US economy from the coronavirus outbreak. If asked about the coronavirus at the press conference Chair Powell will likely say it is one of the risks being monitored. If he were to emphasise it as a big risk, that could see the dollar weaken on bets the Fed is about to lower rates. However if he is too dismissive of the potential economic impact the coronavirus could have, that could see the dollar gain value.
The forint is off its year-to date lows against the dollar, and just above all-time lows against the euro after the National Bank of Hungary left interest rates unchanged on Tuesday. The decision was widely expected and was not accompanied by any strong guidance on the future path for interest rates in Hungary.
The selling of emerging market currencies has stabilised over the past twenty-four hours, but they remain at risk if the coronavirus is not contained. Markets are acting as if the coronavirus outbreak will soon be at an end but there is no evidence yet that it is.
