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Divergent Views on PLN/HUF as Cross Remains Close to 2022 Highs

CEE FX
  • JP Morgan stay long PLN/HUF on deteriorating relative carry, despite yesterday’s smaller-than-expected NBH rate cut (entry: 87.41, target: 92.00, total return: +1.48%).
  • Forward-looking falling HUF rate spreads are quite pronounced against PLN, JPM note, adding that the relationship between PLN/HUF and PLN-HUF 3m FX carry differentials implies PLN/HUF trending towards 91-92. The smaller NBH cut does not change this outlook, so JPM hold long PLN/HUF entered on Jan 19. Fundamentally, with headline inflation momentum negative, JPM believe it would be right for the NBH to decrease its focus on FX passthrough.
  • On the other hand, HSBC believe it has become appealing to play the HUF on the strong side given recent HUF weakness and choose to express this via a sell PLN/HUF trade idea (entry: 88.67, target: 85.00, stop: 90.50). The HUF’s balance of payments dynamics and positive real rate buffer should drive the cross lower, they say.
  • They note that further escalation of political tension between the EU and Hungary is still a risk, but in their view, it would be unlikely for the EC to freeze all the EU funds to Hungary and reverse its decision last month around the unlocking of EUR10bn of funds.
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