HUF: Risk Sentiment Key for HUF With NBH Policy Seen Steady in Near-Term

Expectations of NBH policy in the near-term have been little changed by both the CPI print earlier in the month and the more recent boost in wider risk sentiment, evidenced by the steady path of 3x6 HUF FRAs through 2025 so far. Firm market expectations of unchanged rates until at least March will therefore keep the focus on global event risk as the key driver for HUF moving forward.

• Longer dated contracts capturing the change of NBH management have correlated more strongly with HUF price action. Specifically, the sharp recovery for the currency since mid-January appears to have bolstered expectations of a policy shift after March given the NBH’s acute sensitivity to currency stability (seen in the ~15bp move lower in 6x9 FRAs since the Dec CPI release on Jan 14), though a later start of the disinflation process than currently expected (Q1-2025) would instead narrow the scope of the new NBH management team being able to deliver immediate rate cuts.
• We flagged earlier today that USDHUF has now recorded a 4% pullback from the January highs, breaking through support at the 50-day EMA in the process. The forint has also recorded a solid bounce against the Japanese yen over the past week - HUFJPY has risen around 3% following a brief test of support at 38.65, with the cross now looking to test the December highs – while EURHUF targets its lowest close of the year.
• A sharp decline in HUF vol turn-out (1-month realised vols are showing below 6%, well off the November peak around 9%) will also be welcome news to NBH policymakers after Deputy Governor Virag said Wednesday that Hungary needs to stabilise the forint to slow inflation. Meanwhile, options buyers continue to hedge against HUF strength - 1-month USDHUF risk reversals are showing at their lowest since the start of October, with that of EURHUF nearing on 7-month lows.