Hungarian forint hits 412.5 HUF per Euro

On Monday morning, the Hungarian forint fell to a new two-year low against the euro, reaching 412.5 HUF per euro, before attempting a slight recovery to 411.7 HUF. The dollar also weakened against the euro, with the exchange rate declining from 394.5 HUF to around 393 HUF.

Author

Andrew Davison
November 26, 2024

The financial markets reacted to the weekend's announcement of Donald Trump's nomination of Scott Bessent as U.S. Treasury Secretary, leading to a decrease in U.S. government bond yields and the dollar's value. In contrast, futures for stock indices and emerging market currencies saw an uptick, which contributed to the forint's decline against the dollar. Additionally, a weak German Ifo index further impacted the forint's situation.

Reasons for Forint's Weakness

The depreciation of the forint can be attributed to several factors, including:

- Russian-Ukrainian War: The conflict has significantly weakened the forint. For instance, in January 2022, one dollar was worth 324 HUF, but by the end of December, it had risen to 373 HUF, exceeding 400 HUF as of October 2022.

- Central Bank Policy: The low interest rates set by the Hungarian National Bank (MNB) have reduced foreign investor interest, leading to decreased demand for the forint.

- Advantages and Disadvantages: While a weaker forint could boost Hungarian exports by making local products cheaper, it may also lead to higher inflation in the long run, which has surged to be one of the highest in the EU.

- Economic Concerns: The withholding of EU funds and Hungary's close ties with Russia have instigated fears of economic recession among foreign market players, further aggravating the forint's situation.

In late 2022, MNB’s interest rate hikes helped stabilize the forint, and by the end of 2023, Hungarian real interest rates had surpassed those in the U.S., indicating that previous loose monetary policies contributed to the currency's depreciation.

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