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Forint regains ground before rate meeting, leads FX higher

Forint regains ground before rate meeting, leads FX higher

PRAGUE, Nov 19: Hungary’s forint firmed 0.2 per cent against the euro on Tuesday, ending a three-day slide and supported by expectations Europe’s most dovish central bank will keep interest rates steady and by a Moody’s forecast on economic growth, reports Reuters. Other central European currencies were also firmer while stocks were mixed as Prague and Budapest rose by up to half a percent and Warsaw dropped. Given rising inflation, analysts see decreasing chances the Hungarian central bank will take any easing steps at its meeting on Tuesday. The bank itself has said any necessary adjustment would be implemented through changes in its overnight deposit rate, which is at -0.05 per cent, or tools designed to adjust market liquidity. Its base rate is at 0.9 per cent, the lowest in central Europe. With strong economies still adding to inflationary pressures, central banks in the region have not rushed into easing policy like major central banks from the European Central Bank to the US Federal Reserve. In the Czech case, rate setters are still debating whether tighter policy is needed. Hungary’s policy stance has weighed on the forint along with weak global sentiment as Britain’s uncertain departure from the European Union and back-and-forth in the US-China trade dispute rattle investors. The forint nudged up to 334.90 to the euro on Tuesday, snapping a three-day slide that had brought it to its weakest since the end of September, when it hit an all-time low of 336.28. “That (level) could serve as temporary respite,” Erste Investments said in a trade note. The forint found some support from a Moody’s ratings agency report saying Hungary’s economic growth should remain robust in 2020 and 2021. Other currencies also firmed with hopes remaining the United States and China were moving closer to a trade deal. The Polish zloty and the Czech crown gained 0.1 per cent. Commerzbank said it expected the forint to stay under pressure although at the moment investors were unwilling to test the central bank’s statement it has no exchange rate target with global risk currently supportive. It said Hungary’s low rate policy combined with its current rates of price growth ran the risk of a possible inflation overshoot, which could weigh on the forint going forward.

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