Forint Weakens as Hungary Cuts Rates, Then Pauses
Hungary's central bank cut rates, weakening the forint The National Bank of Hungary cut its key interest rate to 5.75% in July and signaled more cuts ahead. Lower rates make the forint less attractive to hold, so it weakens and USDHUF rises. Markets accepted the renewed rate-cut pricing, keeping pressure on the forint.
This is the core monetary driver pushing USDHUF up during the period.
External shocks and easing cycle erode forint support The forint gave back gains against the euro as external shocks and the central bank's ongoing easing cycle weakened it. When the forint loses ground against the euro, it typically also weakens against the dollar, pushing USDHUF higher.
Shows the broader erosion of forint support beyond the initial rate cut.
Another rate cut to 5.50% weakened the forint further Hungary's central bank cut rates again to 5.50% in late August, with the chief economist seeing a terminal rate of 4.75%. More easing means a weaker forint, so USDHUF rises. The forint's recovery is now tied to the euro entry story, which is uncertain.
This is the second rate cut that extended forint weakness into late August.
Rate pause at 5.50% supports the forint In late September, the central bank was expected to hold rates at 5.50%, a pause that supports the forint. A possible lower inflation target also helps. This counterweight limits further USDHUF gains, though Societe Generale still sees CEE currencies, including the forint, weakening about 3% against the euro on policy risks.
This is the main counterweight to the weakening trend and the latest development.