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Strong Reversal on USDHUF Following 'Hawkish' Statement and Speech

HUNGARY
  • HUF was sold aggressively following NBH decision to hike the policy rate by 30bps to 2.1% (as expected).
  • The 30bps hike was largely priced in by the market; USDHUF surged 2.5 figures to test its 323 resistance before starting to consolidate lower.
  • However, the NBH commented in its statement that it sees 'more extensive and longer' rate-hike cycle, with Virag mentioning that the central bank needs to quickly react to the currency-market risk during the press conference.
  • A weak HUF keeps supporting inflation expectations, putting NBH policymakers in a difficult position.
  • Even though today's statement and speech could sound promising for further aggressive hike, the NBH could 'disappoint again' in the coming meeting as the economic activity continues to decelerate.
  • As a result, weakening economic data and further yield curve flattening could send HUF to new lows, as market will speculate that the NBH will have limited upside in its policy tightening.
  • The positive consolidation in HUF following statement/NBH speech could be just temporary.
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