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Commerzbank Say PLN Weakness May Be Driving HUF Strength

CEE FX
  • Commerzbank say the recent HUF rally was partly as a high-beta reaction to the weakening euro; but also partly a counter-reaction to the strengthening Polish zloty.
  • They argue that EURPLN and EURHUF often move in opposite directions because there is a tendency amongst international institutions to trade the two as a relative value pair. In other words, EURHUF can move even if there is no Hungary-specific fundamental development, solely because institutions became more optimistic (or pessimistic) on PLN. Therefore, the sharp sell-off of PLN last week ends up helping the HUF – hence the downward move in EURHUF.
  • Second round developments may easily follow, they say, for example the market may begin to expect that the NBH will now get influenced by, and start competing with, the NBP on cutting rates. If such a race were to ensue, then that would level the playing field again. But, for now, Commerzbank say HUF strength may extend further as they do not expect the market to reverse its views on PLN anytime soon.
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