Strong inflation data has pushed the Hungarian forint higher in early trade on Thursday. The Hungarian forint has strengthened 0.5% versus the US dollar. The US dollar forint exchange rate is trading -0.5% lower at 310.77 at 09:30 GMT, snapping six sessions of gains, which saw the forint reach a fresh all time low versus the greenback of 313.04.
The forint has jumped off its record low following a sharp rise in inflation. Inflation, as measured by the consumer price index (CPI) surged by 0.9% month on month in January. This was significantly ahead of December’s 0.3% increase. On an annual basis, inflation soared by 4.7%, above the 4.3% forecast and the 4% increases recorded in December. Core inflation, which removes more volatile items such as food and fuel also increased 4% year on year, up from 3.9%.
Headline inflation rose remarkably mainly on the back of higher energy prices. Higher inflation often means that a central bank will consider adopting a more hawkish stance towards monetary policy. In other words, it often means a step closer towards an interest rate rise. The prospect of a rate hike lifts the currency.
However, the fact that Hungarian core inflation only ticked 0.1% higher on an annual basis means that infamously dovish Hungarian central bank is likely to look past the recent surge in headline inflation according to some analysts.
Investors will now look towards tomorrow’s GDP data release. Analysts are expecting economic growth of 1.1% quarter on quarter in the fourth quarter, up from 0.8%. On an annual basis GDP is forecast at 5%, up from 4.5%. A strong reading could lift the forint further from its all-time low.
The dollar is trading broadly lower versus its peers on Thursday, despite an increase in the number of coronavirus cases and as investors look ahead to US inflation data later in the session.
There was sharp increase on Wednesday in the number of coronavirus cases by 15,000, with a further 242 mortalities in the deadliest day of the outbreak. Safe haven currencies such as the Swiss Franc and the Japanese yen are stronger, although the safe haven dollar is dipping lower.
US inflation is expected to tick higher to 2.5%, up from 2.3%.