Hungarian Forint: Domestic improvement versus global headwinds – ING

ING's Frantisek Taborsky reveals Hungary's fiscal trajectory aims to reduce the deficit to 2.8% by 2030, in line with Euro adoption plans. The National Bank of Hungary maintains interest rates at 5.50% and cautions against global uncertainties. The EUR/HUF currency pair oscillates within a narrow 362-364 range, with market movements heavily influenced by external factors and energy prices.

Hungary recently disclosed a comprehensive fiscal plan, projecting a deficit drop from 4.9% to 2.8% by 2030, with the prime minister expressing a desire to adopt the euro as soon as feasible. The central bank reiterated its stance on euro adoption, emphasizing the alignment of the fiscal path with Euro adoption plans. However, rising core yields, economic uncertainties, and inflationary risks demand a prudent monetary approach.

Our analysis indicates that while the domestic scenario appears promising, the global environment remains challenging. Economists anticipate a potential rate reduction at the end of the year, contingent upon global stabilization, especially energy prices. After a recent surge, the market is experiencing a correction following the unveiling of Hungary's budget plan.

Long positions in Hungary have become excessively concentrated, leading to profit-taking. In recent days, the EUR/HUF has remained confined within a tight range of 362-364, with future direction likely dictated by global developments. The recent developments in the US and Iran may positively impact the pair, potentially pushing it towards the lower end of its current range.