"Hungary's forint opened Monday's session around its Friday closing level versus the euro and then started to gain strength against the single European currency in morning trade.The firming may be linked to the latest external financing need statistics, which was published by the central bank (NBH) this morning and showed an improvement from Q1 2007. Parallel to a decline in global risk appetite, the Czech koruna appreciated to a new all-time high versus the euro (around 23.9) in morning trade, as punters were replacing capital in bulk into more secure assets. The SKK has also gained strength to the EUR in reaction to the PM's weekend remarks.
The HUF kicked off today's trade at around 237.50/80, largely unchanged from Friday's finish and firmed to 237 and then to around 236.30 by 12:15 CET. This may be linked to favourable Q1 data published on Hungary's external financing need.
As we highlighted in an analysis last week on what moves the forint ahead: partly owing to the government's fiscal adjustment measures, the trade balance returned to the black and the considerable improvement of the country's external financing need alleviates the depreciation pressure on the HUF, which could have been an important factor in the stability of the currency and its sharp firming to the EUR over the past months.
HUF firming gained momentum after 11:00 CET when inflation data for the euro zone was published (4% yr/yr in May). This is surprising given that the higher-than-expected CPI increases chances for a rate hike by the European Central Bank (ECB) on Thursday and the shrinking of the interest rate spread (the Hungarian base rate is 8.50%, the second-highest in Europe behind Romania) should in theory trigger HUF depreciation.
Local government securities yields moved sideways compared to late Friday levels.
Slovakian Premier Robert Fico said in an interview on Saturday that he would welcome if the final switchover rate, to be announced on July 8, was even stronger than the parity level.
“My idea is as strong a conversion rate as possible, which means people paying as few crowns for a euro as possible," Fico said in a debate on Slovak Radio, echoing a long-held government stance. “And I would welcome if it was even less than the central parity, if the fixed rate was even less than 30.1260 (vs. EUR). But that is a subject for discussion," he added.
The final rate will be announced on July 8.
Reacting to Fico's statement, the SKK firmed to 30.140 against the EUR, while it has been mostly stable during the past weeks, hovering in a range between 30.30 and 30.45."
Source: Portfolio Online Financial Journal
01.07.2008