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Varga Comments Ease Topside Momentum in EURHUF; Steepening IRS Curve May Limit HUF Sell-Off

HUF
  • EURHUF dipped moderately on the earlier comments from finance minister Varga, who eased concerns over the threat to the NBH’s independence by stating that Hungary will adopt the ECB’s recommendation on central bank law.
  • The forint had been pressured as comments from the central bank governor signalled a widening rift between the NBH and the prime minister over proposals to amend the scope of duties of the NBH Supervisory Board.
  • EURHUF spiked to within close proximity of the early August/late September highs of 394.67/394.65. At typing, the cross has since reverted lower and is now around 0.1% in the red, though post-NBH price action has strengthened the bullish theme overall.
  • But despite the larger 100bp base rate cut, the central bank continued to strike a cautious tone in its post-decision communication and described the faster easing pace as “temporary”. Furthermore, deputy governor Virag said today Hungary will maintain an ‘appropriate’ positive real rate.
  • Indeed, the front end of Hungary’s IRS curve has steepened since Tuesday’s rate decision, which ING note is likely to limit the sell-off in the HUF soon. Moreover, Virag's comments on Tuesday that market pricing of rates in the 6-7% region by the end of June are realistic may ease medium-term rate cut expectations.
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