Rising Interest Rates in Hungary Priced Long EUR/HUF, USD/HUF In At the end of June, Hungary’s National Bank became the first of the European Union’s central banks to begin raising interest rates in order to prevent inflation from escalating while the country’s economy recovers from the global depression brought on by the Covid-19 outbreak. Furthermore, it stated unequivocally that it will hike rates again if necessary. The NBH said in a statement that Hungary’s “Monetary Council will continue the cycle of interest rate hikes until inflation expectations stabilize around the central bank target and inflation risks become evenly balanced on the monetary policy horizon.” Since a result, the USD/HUF and EUR/HUF (below) fell sharply, as the hike in the Bank Rate to 0.9 percent from 0.6 percent was larger than economists had projected. It was also the first such increase in more than a decade, and it came with a statement from the Bank of England that it would assess the necessity for further hikes on a monthly basis to combat price pressures amid a faster-than-expected recovery from the pandemic. Inflation was running at 5.1 percent at the time, significantly above the NBH’s goal range of 2 to 4 percent. Martin Essex developed this EUR/HUF (Daily) chart using the IG Platform. That, however, appears to have been fully priced into EUR/HUF and USD/HUF, and both the European Central Bank (which sets rates for the Eurozone but not the EU as a whole) and the US Federal Reserve (which sets rates for the US) are edging closer to raising interest rates as global inflation fears rise. Neither the ECB nor the Fed is on the verge of raising interest rates. At the time of writing, markets were pricing in a five-basis-point tightening by the ECB by the end of next year, and a still-modest 21-basis-point tightening by the US by November 2022. Still, if global inflation fears grow, and markets begin to price in monetary policy tightening sooner than expected, those currencies that have already risen, such as the Hungarian Forint, may suffer the most. USD/HUF (United States Dollar/Hungarian Forint) Chart (Daily) Martin Essex developed the chart, which he created using the IG Platform. Furthermore, there are growing signs of a breach between Hungarian Prime Minister Viktor Orban and NBH Governor Gyorgy Matolcsy over Orban’s 2022 budget, which Matolcsy sees as too expansionary, and if this feud worsens, the HUF could fall in Q3. View each DailyFX Analyst’s favorite trades for the third quarter. From the DailyFX Free Trading Guides, download our new 3Q top trading chances guide!/n
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