The US dollar is up against the Hungarian forint on Tuesday. A shift to monetary tightening in Hungary is being offset by a broader risk-off sentiment across markets where emerging market (EM) currencies like the forint are being shunned in favour of the US dollar.
USD/HUF was higher by 39 pips (+0.13%) to 309.77 with a daily range of 308.75 to 310.38 as of 12pm GMT. The moderate daily gains take the currency pair positive on the week by 0.02%.
Hungarian forint suffered a bout of profit taking on Monday
This happened after having touched 2-week highs versus the dollar and 4-week highs against the euro. The shifting fundamentals for Hungary saw the USD/HUF currency pair probe lower again on Tuesday before again rebounding when global risk sentiment soured. The 2-week lows came before the weekly swap tender by the National Bank of Hungary. The central bank had offered 320 million euros worth of swaps, but the swaps demand was not well-received by traders and caused the forint turn lower again.
The National Bank of Hungary appeared to reverse its understood stance of ultra-dovish last Thursday when Vice Governor said the NBH will ‘use all available tools to achieve the inflation target’. Hungary has seen inflation consistently above the NBH target, implying the bank needs to tighten policy to get inflation down. So far, the bank has relied on FX swaps to reduce excess liquidity but if that doesn’t do the trick, the natural next step would be to raise interest rates. The benchmark interest rate in Hungary has been at 0.9% since 2016.
The US dollar
Haven flows and another batch of soft European economic saw traders favour the US dollar ahead of some minor economic releases on Tuesday and FOMC minutes on Wednesday. Economic sentiment in Germany is collapsing even faster than expected according to the monthly ZEW survey. US manufacturing and housing data are on tap Tuesday. The Empire State Manufacturing index is expected to rise slightly to 5 in February from 4.8 at the last reading. Afterwards the NAHB Housing Market index should hold firm at 75.