HUF: Hawkishness with cracks - ING

As expected, yesterday's National Bank of Hungary meeting did not bring any changes. The central bank tried to send a hawkish signal but did not commit too much. Of course, the main reason is the EUR/HUF level and the volatility of the Hungarian market, ING's FX analyst Frantisek Taborsky notes.

NBH to wait until next year for the first cut

"The initial market reaction suggested a stronger HUF, however the mention of one vote for a rate cut reversed the direction again and EUR/HUF ended the day higher above 408. As we've mentioned previously, much of the reason behind the FX weakness is not in the hands of NBH but is directed at the global story."

"The pressure on FX, as in the rest of the Central and Eastern Europe (CEE) region, is here to stay for longer in our view. So NBH will just have to wait a longer. Rate cuts are of course postponed indefinitely regardless of dovish data from the economy. We believe EUR/HUF will be drawn further towards the 410 level and possibly move higher should global markets come under pressure."

"Until then, we will likely see NBH wait until next year and do nothing. At the same time, yesterday's escalation of the Ukraine-Russia conflict shows the vulnerability of the situation and clearly the divergence between Europe and the US after the election shows nothing positive for the CEE region which increases the risks of further selling here."