Central Europe’s currencies to see scant gains in the next year

PRAGUE: Hungary’s forint will stay on the back foot in the coming months before returning to steady gains, but the space for it and other central European currencies to firm in the next year remains tight, a Reuters poll showed on Thursday.

Investors have put central European currencies under pressure in recent months with economic and energy worries building as inflation bites and war in Ukraine continues to affect power markets.

The US dollar is also stronger as the Federal Reserve lifts interest rates, dampening demand for riskier assets.

The forint has been hardest hit due to twin deficits in Hungary and Budapest’s disputes with the European Union holding up recovery funds.

It touched a record low 416.90 to the euro in July. It has since recovered 4.5% but remains down over 7% since the start of the year.

In the poll, the forint, which closed at 399 per euro on Tuesday, was seen weaker at 404.0 to the euro in one month before gaining 1.4% overall to 393.34 in a year.

“The hawkish (Hungarian central bank) and a rising rate differential should protect the forint from another significant move above the 400 level, but it will not be enough for a prolonged strengthening below this level,” ING economist Peter Virovacz said.

He added progress in EU negotiations could provide a spark.

In Poland, the region’s biggest economy, the zloty was also seen getting back to moderate gains after a drop of almost 3% so far this year. The median forecast in the poll saw the zloty at 4.65 to the euro in 12 months, up 1.6% from Tuesday’s closing levels.

The Czech crown, which has been steadier than its peers as the central bank has intervened against weakening pressures since May, was forecast to rise 0.6% in the next year, to 24.50 to the euro, but was expected to still see weakness for most of this year.

While other central banks in central Europe are using interest rate hikes to tame inflation, markets are split on whether more Czech policy tightening is likely as a revamped board led by a new governor who has opposed higher rates meets on Thursday for the first time.

The poll saw the Romanian leu remaining an outlier and staying under pressure. It was forecast to drop around 3% to 5.075 to the euro over the next year.