/HUF: Pair In Retreat As Hungary/Poland Yield Spreads Tighten

PLN/HUF has extended its dynamic sell-off to the second consecutive day after Hungary struck a partial deal with the EU and secured access to some of the suspended funds in exchange for dropping its veto against the bloc's aid package for Ukraine.

• Member states reduced the amount of frozen cohesion funds to EUR6.3bn from EUR7.5bn and approved Hungary's recovery plan, which entitles the nation to a further EUR5.8bn in grants. Still, they made access to the funds conditional on Hungary meeting a set of targets related to its judiciary system, which Budapest does not expect to happen at least until 2Q2023.
• Meanwhile, Polish media outlets have continued to circulate reports suggesting that Warsaw is determined to enact necessary legislation to meet EU milestones and secure access to its share of EU recovery funds.
• PLN/HUF last deals at HUF87.47, almost 100 pips worse off on the session, with bears looking for a clean break below the 50-DMA, which kicks in at HUF87.04. Below there opens Nov 29 low of HUF86.66. For bulls, a clearance of Dec 12 high of HUF89.69 would bring the all-time high of HUF89.65 into play.
• Hungary/Poland 10-year yield spread has pulled back from cyclical wides and briefly showed back below 200bp for the first time this week. The differential last sits at ~210bp.
• Equity benchmarks are firmer in line with broader risk-on sentiment, with WIG20 +2.2% & BUX +2.3%.