EUR/HUF: NBH cutting cycle restart and FX impact – ING

ING’s Frantisek Taborsky expects the National Bank of Hungary to restart its rate-cutting cycle after September 2024’s last move, citing sharply lower January inflation and benign regional trends. Markets see today’s cut as a done deal, with another in March likely, and EUR/HUF is expected to stay around 379–380 despite higher intraday volatility.

Hungarian central bank seen resuming easing

"The big day for the National Bank of Hungary is here, and we expect a restart of the cutting cycle after the last rate cut in September 2024. All the important metrics and market developments suggest that this is imminent. January inflation showed a sharp decline to 2.1%, well below the NBH target, and most underlying measures also show a favourable trend."

"Today's decision to cut rates seems like a done deal from the market's perspective, and at the same time, another rate cut in March in our forecast should not be a surprise. Even so, the focus will be mainly on the central bank's forward guidance. Although near-term cuts are priced in, we believe that the market can price in a lower terminal rate than the current 5.25%."

"From the market's perspective, the main question should be the direction of EUR/HUF. The currency pair is only moving just above local lows, the lowest in the last two years, which is one of the reasons why the NBH is willing to return to rate cuts."

"Although the market is pricing in today's rate cut, some upward pressure on EUR/HUF can be expected. On the other hand, the market has repeatedly shown that any upward movements are a good opportunity for new HUF longs, which may be the case today as well. Therefore, overall, we do not expect much from FX today at levels around 379-380, although intraday volatility will be increased."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)