EUR/HUF likely to trade at around 306 by mid-2017, says Lloyds Bank

In the past month, Moody’s was the third rating agency to upgrade Hungary’s sovereign rating in 2016. The country’s sovereign rating was pushed back up to investment grade. This move came after similar actions taken by Standard and Poor’s and Fitch since May this year. This move has underpinned a 3 percent fall in the EUR/HUF currency pair to around 310 recently.

Meanwhile, a record current account surplus in the June quarter, driven by strong exports, is equally positive for Hungarian forint. With the present macroeconomic backdrop, the Hungarian central bank has struggled to temper HUF gains, noted Lloyds Bank.

However, for the moment, additional cuts in interest rates seem to be unlikely, even if inflation continues to stay below target rate. Instead, the Hungarian central bank is expected to prefer methods aimed at stimulating liquidity in local money markets to lower domestic interest rates and counter downside pressure on EUR/HUF. This is expected to lead to only a gradual appreciation of the Hungarian forint.

“We look for EUR/HUF to edge lower to 306 by mid-2017”, added Lloyds Bank.