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Goldman Sachs See Rising HUF Headwinds

HUF
  • Goldman Sachs expect the NBH to remain attentive of HUF developments through its cutting cycle, which should limit the extent of sharp currency moves. However, even with this in mind, they see two key headwinds for the Forint which means the currency may struggle to rally much beyond their 12-month forecast of 380.
  • First, under Goldman’s forecasts, the decline in real rates in Hungary through 2024 is the largest within major EMs. As the market has priced this outcome, FX carry has declined meaningfully in contrast to other EM high-yielders (such as MXN) where carry remains elevated.
  • Second, they find that after the sharp rally in 2023, the Forint no longer screens as cheap on their valuation metrics. While the recovery in external balances has been an important structural tailwind, the cumulative increase in the inflation differential through the last couple of years points to a higher nominal exchange rate than before, Goldman Sachs write.
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