Forint Jumps Ahead

The major currency of Hungary, Forint has increased to the strongest level in last 3 months, as a result, Goldman Sachs Group has closed its trade recommendation of selling Forint against Euro. The Hungarian economy, as the economists think, has finally been able to come out of the recession. Forint went ahead by 0.6% on today and it is currently at 289.21 per Euro. This marks the 7th straight daily advance of Forint and in the 2nd quarter, the currency has now appreciated by 5.2%. On April, Goldman Sachs announced that Forint may weaken to 310 per Euro and thereby it was recommended to the traders to close a trade if the exchange rate has strengthened past the 290 level.

As mentioned by the Central Statistical Office on 15th May, in the first quarter, the economy of Hungary has expanded by 0.7% from the final 3 months of last year, marking the first quarterly growth within a year’s time. The expansion in output solidify efforts of Viktor Orban, the Prime Minister of Hungary to meet European Union budget targets as he wanted to move out of the excessive deficit procedure of the Euro region within this year. Incidentally, in a research note, analysts of Goldman Sachs mentioned that they underestimated the degree of risk premium for weaker economic outcomes which has already dubbed in Forint. There are two positive catalysts for Forint in forms of the strong GDP print and the smooth outcome in the current budget negotiations with the European Union, as mentioned by the analysts of Goldman Sachs.

The benchmark 10-year Forint bond yields were more or less unchanged at 5.06% on today as it reached a record low figure of 4.93% on last week. If the yields on US Treasuries of the same maturity are considered, those increased by 4 basis points and are currently at 1.97%. On 23rd April, the benchmark rate was cut to 4.75% by the Central Bank of Hungary.

On last month, Goldman analysts stated that Forint would weaken due to the narrowing rate premium and also due to the fact that the policy makers of Hungary may put up with a weaker level of Forint. The analysts, on today’s note, commented further that the broader fundamental view on Forint of them has not changed much. The trade incurred possible 2.86% loss including negative carry of 32 basis points.