CEE: All eyes on the forint, again
Regional currencies are showing the first signs of relief, but we think it is too early to announce the end of the sell-off. Although the Polish zloty has stabilised after a week of weakness and the forint has shown rapid appreciation, gas prices are testing new highs and Friday's Jackson Hole symposium may once again return support to the US dollar.
For the Polish zloty, we see a sideways move at the moment and a wait-and-see approach for further global developments. Today, however, all attention will be back on the forint and the National Bank of Hungary (NBH). The central bank has its weekly meeting scheduled for today, but like last week, we expect the one-week deposit rate to remain unchanged. Yesterday's move has brought some calm to the FX market, plus the NBH is scheduled to hold a regular monetary policy meeting on Tuesday next week. Thus, in our view, the NBH is saving its ammunition for the full meeting and does not want to risk a shot without effect, taking a lesson from the July sell-off.
On the other hand, the market may still have some expectations that we think will not be met today, which again might not bring good news for the forint. Elsewhere, we could see some positive headlines regarding the negotiations between the Hungarian government and the European Commission. However, only from the Hungarian side, which leaves us cautious about the further development of this story. So overall, a move back towards 415 EUR/HUF is not out of the question over the coming days and we will see what the NBH reaction will be next week. Still, the forint is the only currency in the region currently supported by a rising interest rate differential and we should see a HUF rally back below EUR/HUF 400 in the case of positive news from the European Commission. However, this is certainly not a matter for the next few days and the forint will still have a tough time.