HUF: Cautious tone as a reason to rally – ING

The National Bank of Hungary is scheduled to meet today, but this should be a copy-and-paste of previous meetings. FX has seen significant relief in the last two weeks, but inflation did surprise to the upside in December. Markets expect rates to remain unchanged at 6.50% today with the same tone as last time, ING’s FX analysts Frantisek Taborsky notes.

EUR/HUF to trade at 420 at the end of the quarter or later

“In markets, we will be watching EUR/HUF and the spillover to the fixed-income market today. The currency pair has dropped below 410 over the last two days, the lowest this year, allowing for some rally in fixed income as well. If the NBH repeats its previously cautious tone, which is our baseline view, this should be confirmation for EUR/HUF to stabilise and potentially test lower levels. This we believe is a condition for HUF assets to rally as well.”

“Even though the very front-end curves will not see much dovishness anytime soon, we believe the belly and long-end rates and bond curves are mispriced and should be lower. The medium-term picture for HUF, however, is not positive for us. The central bank will return to a dovish tone at some point this year and EUR/USD will be lower, again pushing EUR/HUF higher. Thus, we expect EUR/HUF at 420 at the end of the quarter or later, depending on the global story.”