EUR/HUF likely to move upwards towards 315.00 by Q1 2017

The Hungarian forint has become more stable after the central bank firmly ruled out additional easing of monetary policy for now. The general EM risk rally has also assisted in moving several exchange rates to totally different ranges in the past year, including EUR/HUF. However, the currency pair EUR/HUF had traded at 318.00 as recently as in June, and might become relevant as the U.S. Fed sets up its next rate hike, said Commerzbank in a research note.

By late 2016, the continued mild inflation and the market growth downturn are expected to renew the market’s rate cut projections. This in turn is likely to exert upward pressure on EUR/HUF towards 315.00 by the first quarter of 2017, according to Commerzbank.

Meanwhile, the HUF is not a candidate for continuous depreciation in the longer term. Firstly, the nation has a considerable current-account surplus that has broadened in recent years to 4 percent to 5 percent of GDP. Secondly, inflation has virtually disappeared. Thirdly, the fiscal deficit has narrowed sharply and is projected to remain stable at just 2 percent of GDP through 2018, and lastly, net external liabilities as percentage of GDP have dropped noticeably since 2013.

Fitch, in May 2016, restored Hungary’s credit rating to investment grade, whereas S&P unexpectedly upgraded in September. Moody’s is also expected to restore the nation’s investment grade rating during its November review.

“With two agencies already at investment grade, benchmarked real money managers will likely be increasing their portfolio exposure to Hungarian assets, which would be HUF-supportive in the near-term”, added Commerzbank.