- EURHUF has started the session on the front foot, with the cross up ~0.3% at typing and within relatively close proximity to yesterday’s high of 394.59, where it fell just short of the early August/late September highs of 394.67/394.65. The recent release of EZ inflation data has done little to move the needle so far.
- Concerns over proposals to amend the scope of duties of the NBH Supervisory Board and the perceived threat to central bank independence hampered the forint yesterday, though EURHUF ultimately ended the session in the red after the finance minister stated that Hungary will adopt the ECB’s recommendation on central bank law, while a rally in the major global equity benchmarks following the US PCE data lent support to risk sensitive currencies.
- The post-NBH rally in EURHUF has seen 1M implied vols tick up from multi-year lows (see image below), with the larger 100bp move on Tuesday perhaps evidence that the central bank is less concerned over FX weakness than they have been previously.
- Nevertheless, another 100bp cut in March is far from a foregone conclusion, with the overall tone of post-decision communication cautious once again. Indeed, the front end of Hungary’s IRS curve has continued to rise, while any more hawkish central bank messaging may limit additional HUF weakness.
Figure 1: EURHUF 1M implied vols
