Here’s why Hungarian forint (HUF) is falling against EUR, USD

The Hungarian forint has come under pressure in the past few weeks. The USD/HUF exchange rate rose to 361, its highest point since November 1st last year. Similarly, the EUR/CHF pair soared to 395, its highest level in more than a year. The two have risen by over 7% from their lowest point in 2023.

Hungarian forint is plunging

The main reason why the Hungarian forint has retreated is because of an ongoing cold war between Viktor Orban and Gyorgy Matolcsy, the head of the central bank. 

According to Bloomberg, the two sides have developed substantial bad blood that they are no longer talking. Viktor Orban, who has been Prime Minister since 2010. He was also the president between 1998 and 2002, making him the longest-serving PM in the country.

The beef between the two is mostly because the central bank has resisted calls for faster interest rate cuts to support an economy that is slowing. 

The bank has been in a cutting cycle recently. It slashed rates from a peak of 13% in September last year to the current 9%. It has cut them in the past five straight meetings and analysts believe that it has room for more cuts going forward.

The most recent data shows that Hungary’s inflation has been in a freefall in the past few months. After peaking at 25.7% in 2023, the headline Consumer Price Index (CPI) has plunged to 3.8%. It remains inside the central bank’s target range. 

Therefore, the ongoing feud risks moving to a boiling point as the government plots a way forward. Such a move could see the bank lose its independence, a dangerous move that is seen clearly by the ongoing plunge of the Turkish lira.

All this is happening as Hungary continues recovering from the Covid-19 pandemic, which pushed it into an extended recession. Consumer spending and industrial production have remained under pressure while the unemployment rate remains above 4%.

EUR/HUF technical analysis

EUR/CF chart by TradingView

The daily chart shows that the EUR/CHF exchange rate has been in a strong uptrend in the past few weeks. It has risen above the ascending trendline, which connects the lowest swings since June last year.

The pair has now moved to 395, the highest point in September and August last year. Further, the Percentage Price Oscillator (PPO) has moved above the neutral point.

Therefore, the outlook for the pair is extremely bullish, with the next point to watch being at 402.31. This view will likely happen after the upcoming ECB decision on Thursday.

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