Canada-US Trade Talks Gain Momentum Ahead of Aug. 19 Tariff Deadline 
Strait of Hormuz Shipping Near Standstill After New Vessel Attacks 
Japan Government Backs Earlier BOJ Rate Hike as Inflation Pressures Build 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
Gold Prices Rise as Weak US Retail Sales Cut Fed Rate Hike Bets 
European Stocks Steady as U.S.-Iran War, Euro Zone Data Keep Investors Cautious 
European Stocks Rise as U.S. Inflation Data Eases Fed Rate Hike Fears 
UK Economy Posts Surprise June Growth as World Cup and Hot Weather Lift Activity 
Add as a preferred source on Google
The EUR/HUF currency pair is expected to witness further upside risks going forward, not because of the tussle between the Hungarian government and the EU on migration quotas or rule of law issues, but rather owing solely to inflation developments.
After Tuesday’s September CPI data, which showed noticeable inflation acceleration, there is an increasing risk that the market will no longer buy a story that inflation will stay low over the medium-term. Since the central bank has proceeded strongly and unilaterally to ease monetary policy regardless, the implications for the forint are negative, Commerzbank reported.
Local inflation trends may vary slightly from country to country but the eurozone as a whole is witnessing stagnant and below-target inflation; a good argument can be made that the inflation trend around CEE will not diverge too much from this.
Nevertheless, the forint occupies the extreme where a central bank has already pre-committed to inflation turning lower (and not reaching target until 2019), it has already eased policy based on such a belief, in the face of accelerating inflation.
At its last MPC meeting, the Hungarian central bank aggressively eased monetary policy: it lowered its overnight deposit rate further into negative, it cut the cap on its 3-month deposit facility from HUF300 billion to HUF75 billion, and it announced an increase in the stock of swap instruments in a bid to flatten the yield curve further. These actions were justified by a reduction in inflation forecasts in the Q3 Inflation Report (2018 cut from 2.8 percent to 2.5 percent).
"If MNB were to be viewed by the market as not “data-driven” at this time, then stronger CPI data would not have any of the usual HUF-supportive effects – it would have an unambiguous HUF-negative effect," the report said.
Meanwhile, FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest
