BUDAPEST: Hungary’s forint led losses on Thursday in Central Europe, easing half a percent close to new 2-year lows versus the euro after the US Federal Reserve cautioned it would ease the pace of rate cuts, boosting the dollar.
The crown also eased, for a fourth straight day from a three-month peak, ahead of a meeting of the Czech central bank later in the day where the bank is seen joining others in Central Europe by pausing its one-year easing campaign.
That would mark the first time since Hungary started cutting rates in May 2023 that all four of Central Europe’s central banks have kept rates on hold in the same month.
“The Czech National Bank is very likely to take the first pause in the cutting cycle today and leave rates unchanged at 4.00%. The main reason is likely rising headline inflation, which is expected to exceed 3% in December although core inflation remains close to the central bank’s 2% target,” ING said in a note.
“Overall, we prefer to be on the dovish side given market pricing in rates and expect weaker FX after the meeting today.”
Forint steady before Hungarian rate decision, zloty eases
The crown edged 0.02% lower to 25.131 per euro, having given up attempts to firm past the psychological 25 level last week.
The forint, which has been the region’s laggard this year, weakened 0.5% to 415, getting one step closer to new two-year lows to the euro around 415.35.
“The forint has eased markedly (to the euro),” brokerage Equilor said in a note. “At the same time, the dollar/forint rate hit the 400 level which we had seen last happen about two years ago.”
Hungary’s central bank left its base rate steady at the European Union’s joint highest level of 6.5% on Tuesday, as widely expected, after falls in the forint since its latest rate cut and tax hikes have raised next year’s inflation path.The forint traded at 409 after the rate decision, easing sharply from those levels by Thursday.
The Hungarian currency, which sank to record lows past 430 versus the euro in late-2022, is down 7.7% this year, underperforming all other central European peers. This leaves the unit vulnerable to any shifts in global sentiment at a time when billions of euros worth of EU funds are still suspended by Brussels and the economy is struggling.
The Polish zloty, which traded flat at 4.263 to the euro on Thursday, is the only major currency in the region to gain this year, helped by a pause in rate cuts since last year, a steady flow of EU funds and a sound economy.
“The clearly hawkish message from the Fed resulted in a drop of around 1.5 cents in the eurodollar to 1.0350 and a solid increase in Treasuries yields,” Bank Millenium said in a note.
“The zloty is once again proving its resistance to global movements.”