The Hungarian forint faces renewed pressure after January inflation plunged to 1.7 percent, undershooting both market expectations and the National Bank of Hungary’s own projections. The dovish data released this week virtually guarantees monetary policy easing in both July and August, according to ING analyst Frantisek Taborsky. Markets are currently pricing approximately 150 basis points of cuts, pointing toward a terminal rate of 4.50 percent, though Taborsky suggests there may be room for even deeper reductions.
The inflation miss significantly strengthens the NBH’s case for aggressive rate cuts as price pressures ease faster than anticipated. Traders holding forint positions should prepare for increased volatility as the central bank pivots toward accommodation. Currency weakness against the euro appears likely as rate differentials narrow, while Hungarian government bonds may see buying interest on expectations of further monetary loosening.
FXnCO Insight
Traders should position for forint depreciation and consider reducing long HUF exposure ahead of the July meeting, as deeper-than-expected cuts now appear increasingly probable.
Source: FXStreet