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EURHUF Trades Close to August 2022 Lows

HUNGARY
EURHUF (-0.80%) is extending yesterday’s losses, with the cross breaking through 393.64, the Jan 9 low, and now looking to test 391.55, the Aug 12 lows. The pair currently sits at its lowest level in five months as markets continue to take optimism from Finance Ministry’s confidence in unlocking frozen EU Covid and cohesion funds. Price action has seen the euro-proxy currency comfortably outperform its CEEMEA peers today (EURZAR: -0.09%, EURPLN: +0.14%).
  • Similar optimism seen across the sovereign curve with 10Y domestic Hungary bond yields trading 32bp lower, while 5Y bonds are trading at their highest level since June 2022. The Budapest Stock Index sits 1.05% higher on the day.
  • Domestic news and data flow has been light this week, with next week’s NBH rate decision set to take focus. Despite Friday’s downside CPI surprise (24.5% Y/Y vs. 25.8% Expected), inflation is yet to peak following the removal of the fuel price cap last year, while core inflation remains at record-highs. The miss will give the MPC room to hold rates once again, however with inflation still to peak, we are unlikely to see a pivot in the NBH’s preference for liquidity draining as the Bank continues to lean more heavily on deposit tenders and non-rate based policy tools.

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