European currencies struggle in face of Iran war volatility, particularly CEE currencies
|Increase in Oil prices
The halt of all production at Ras Laffan (the world's largest LNG export complex) and the triggering of the Force Majeure clause by QatarEnergy, which effectively halts Qatar's LNG output, led to a sharp increase in gas prices. Importantly, unlike crude oil, there's no spare LNG capacity to be placed in the market.
Importance for the European market
As Europe entered March with unusually low gas inventories (~30%, 21.6% in Germany), the move has been particularly abrupt in the European market. Qatar provides roughly 15% of Europe's total LNG imports. It is also the number #1 supplier for Asian giants (China, Japan, South Korea), which makes the bidding war for US and Australian cargoes particularly intense. Dutch TTF Gas Futures, a benchmark for European gas, is now up by roughly 100% week-to-date.
Impact on the Euro
European currencies are thus among the worst performers worldwide, with the euro down 1.8% against the dollar. The scale of the movement is naturally fuelled by risk aversion and a lack of alternatives for investors, which has intensified inflows into the dollar and gold. Today has also brought an upward inflation surprise from the Eurozone, with the services index edging up to a troubling 3.4%. Upward rates repricing is taking place across the board, with markets now seeing a 50/50 chance of an ECB rate increase by the end of 2026.
As is usually the case in such circumstances, risk aversion and the euro sell-off are weighing particularly heavily on CEE currencies.
Impact on the Hungarian forint
The region's highest beta currency, the Hungarian forint, ranks at the bare bottom of the global FX dashboard for the week, weakening by nearly 5% against the dollar. Notably, today marks the 4th-largest daily percentage increase in USD/HUF over the last decade.
Last year's EUR/USD move upwards has propelled the forint close to the top of the global dashboard, creating room for a sell-off. Additional volatility may soon follow in the wake of the April parliamentary elections. Incidentally, the growing uncertainty surrounding energy prices is consistent with MNB's fairly hawkish rhetoric accompanying last week’s cut.
Impact on the Polish zloty
The Polish zloty is not faring much better (-3.5% vs. USD week-to-date), with the scale of today’s USD/PLN move unseen since 2022 and the outbreak of war in Ukraine. The currency is awaiting tomorrow's decision of the National Bank of Poland.
A cut, which was seen as a done deal in recent weeks, has been put in doubt given elevated uncertainty and soaring energy prices. Aside from Wednesday's decision, investors will certainly be paying close attention to President Glapiński's press conference on Thursday.”
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