The US dollar is higher against the Hungarian forint on Wednesday morning with traders not satisfied yet that the National Bank of Hungary has done enough to see off higher inflation that could weaken the forint further. The dollar is firming against most major currencies before the release of jobs and service sector data later today.
USD/HUF was higher by 63 pips (+0.20%) to 304.58 with a daily range of 303.73 to 304.73 as of 10am GMT. The currency pair has been hovering above support at 304 this week. On Monday it gained 0.21% only to fall -0.23% on Tuesday.
USD/HUF – The forint had a boost on Tuesday from monetary tightening by the National Bank of Hungary
The central bank rejected all bids in a liquidity swap tender in order lessen the amount of liquidity in the system. Controlling the money supply by offering FX swaps to commercial banks has been a preferred method by the National Bank of Hungary while it maintains a dovish interest rate policy.
The Hungarian central bank wants to encourage bank lending by keeping interest rates low, so it is attempting to control inflation via other means. The result of the actions taken by the NBH on Tuesday meant that surplous liquidity in the banking system dropped by 130bn forints to 2.005trn. Put simply, with less forints in the system, the forints left should be worth more. Nonetheless the consensus view from economist appears to be that the central bank is behind the curve and needs to do more to curb inflation. That viewpoint could limit gains for the forint in the near term.
The Dollar
Dollar strength has been a factor limiting the downside in the USD/HUF currency pair. EUR/HUF has gained for four straight weeks, hitting a record high last week. Its appeal as a haven during the coronavirus outbreak as well as a string of better than expected economic data points has underpinned demand for the dollar. On Monday the US manufacturing sector bounced back from contraction to expand again in January for the first time in five months.