HUF: US CPI the Next Piece of the Puzzle Ahead of NBH September Decision

EURHUF (-0.10%) continues to consolidate the strong rally seen on Monday, which was largely attributable to concerns over Prime Minister’s plans for a cabinet overhaul. US CPI data provides the next piece of the puzzle ahead of the NBH's September decision and could set the tone for the forint’s short-term trajectory.

• Hungarian inflation was below-expectations in August, bolstering the case for a resumption of rate cuts at the September meeting and contributing to ongoing HUF weakness. However, the central bank stated last month that the potential scope for further easing would depend on the policies of the major central banks. While there is almost no reasonable outcome from today’s CPI data to prevent the FOMC from cutting next week – the result could still be a market mover given lingering hopes of a 50bp cut.
• While most sell-side analysts are expecting a 25bp cut this month (and likely one additional 25bp move towards the end of the year), HUF weakness poses a downside risk given the importance the central bank has placed on Hungary’s risk profile. From a technical perspective, the sharp move higher in EURHUF Monday resulted in the break of resistance at 396.06, the Aug 16 high. This highlights a short-term bullish reversal and signals scope for a stronger recovery towards the more important resistance at 399.21, the Aug 5 high.