Yesterday's data in Poland brought a downside surprise across the board. This morning markets have already seen Hungarian wages for August and later on retail sales in Poland will be released which is expected to be above the market's expectations, ING’s FX analyst Frantisek Taborsky notes.
All eyes on the National Bank of Hungary meeting
“However, today's highlight is the National Bank of Hungary meeting. In line with expectations, we expect no change in rates at 6.50%. Of course, the recent sell-off in HUF, along with the whole EM space, has turned the central bank hawkish and the pause in the cutting cycle has been highly communicated in the previous days. Even so, the market awaits another hawkish report and hints as to what central bankers want to see before returning to the rate cut discussion.”
“On the macro side, the central bank may be satisfied. Inflation is on target while the economy surprises more on the negative side. However, global markets are not supportive and EUR/HUF above 400 is a warning sign for the NBH. The main question for today is how long the pause in the cutting cycle is. Markets have priced out much of the NBH easing and rates continue to sell off across the IRS and HGBs curve.”
“The market is pricing in the first cut in June after yesterday with the terminal rate at 5.90%, roughly 130bps above the September lows. That seems too far to us, but it makes no sense to go against the market in this environment. Despite the market already being on the hawkish side, NBH will not have an easy job today and communication will be key. However, we believe the central bank is aware of the fragile situation and therefore the HUF could see some gains today, but it is probably too early for any significant recovery and every gain could be short-lived.”
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