Immediately after exchange rate markets opened on Thursday, the forint reached new historical lows on Thursday against both the euro and the dollar. The Hungarian currency hit a new low of 435 against the dollar and 419.85 against the euro.
Before Thursday, the currency’s previous historical low against the dollar was 432.6, and 416.7 for the euro. Unusually, the forint weakened significantly even before the market opened.
A stronger dollar is almost certainly the reason behind these fluctuations in the exchange rate. The U.S. currency has been gaining strength since September 28, and saw a significant jump against the euro at the same time that smaller currencies plummeted.
The forint has been weakening since Tuesday, when Hungary’s central bank, MNB, announced a larger-than-expected interest rate hike while ending its previous interest rate hike. In the future, the central bank will continue monetary tightening measures through other means, primarily through reducing liquidity.
The Hungarian base interest rate is quite high even compared to neighboring countries, but with the Federal Reserve also hiking interest rates and the dollar getting stronger, investors view American financial instruments as extremely safe and offering increasingly better yields.
The Hungarian forint has underperformed this year compared to other regional currencies, mostly due to the vulnerability of the Hungarian economy and the Hungarian government’s dispute with the European Commission that threatens to cut off billions of euros in EU aid to the country. [HVG]
The US Dollar stands on firmer ground compared to the Euro.
Euro has steep inflation, especially relating to energy-costs, to deal with but the coordinated market between most EU banks softens the rise of inflation to predictable levels. But direct control is not exactly present.
Hungary operates with a (strong) dark horse – the Russian gas and oil cock – which, at any time whenever Putin sees fit, may turn in a restrictive direction. That could surely weaken the Forint to the point of national bankruptcy, in which case Orbán’s cronies lose most of their assets.
Hopefully, the “Shadow government” is prepared for this event.
Do you really think Putin has the capability of wrecking the Hungarian economy at will? I mean if so why wouldn’t he do it to non-eurozone countries like Poland?
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