The Hungarian Forint has weakened to its lowest level on record versus the US dollar on Wednesday. The US Dollar versus Forint exchange rate has pushed its ascent into a 7th straight session, hitting a peak of 318.73 as the flight to safety continues.
USD/HUF: US Dollar Demand Soars
After a quiet start the US Dollar is soaring higher across the board as investors and businesses grow increasingly concerned over the economic impact of coronavirus. Investors are selling out of almost everything in order to hold US dollars, whilst businesses are drawing down loans to hoard the greenback ahead of the economic hit.
The US stock market is pointing to yet another session of heavy losses when it opens, potentially in the region of 3% -4%. Other traditional safe havens such as gold are being sold out of in favour of cash. This level of rotation into the US dollar is only seen in extreme levels of uncertainty.
The demand or the dollar has outweighed the work done by the Federal Reserve, pumping dollars into the financial system and slashing interest rates to almost zero. The Federal Reserve has thrown almost everything it has at the problem, meaning that there is little ammunition left.
-2.5% Fall In GDP Forecast in Q2
As coronavirus spreads across Europe, more and more countries are adopting draconian measures to protect the public from killer bug. Central and Eastern Europe is no exception. Economic growth across the region has been downgraded.
In Hungary, due to panic buying of non-perishable items last month and so far, this month economic activity could remain in expansion territory in the first quarter of the year. However, as the country moves into lock down and social events halt in the second quarter, economists are predicting a -2.5% decline in GDP.
With weak economic growth expected and given the sharp decline in the price of oil, to $26 per barrel, inflation in Hungary is expected to decline. However, consumer prices have been over target for some time so a fall to 3% this year isn’t so terrible.
The Hungarian National Bank have already taken some steps to increase liquidity via the regular FX swaps. The central bank has also announced a new daily facility, a 1 week swap to provide additional liquidity. The next move could be expanding its bond buying programme in an attempt to shield the economy from coronavirus.
