Central European currencies will see little gain next year

The Hungarian forint will remain down in the coming months before returning to steady gains, but space for it and other central European currencies to strengthen next year remains tight, according to a Reuters poll on Thursday.

Investors have put central European currencies under pressure in recent months, with economic and energy worries mounting as inflation bites and the war in Ukraine continues to affect power markets.

The US dollar is also stronger as the Federal Reserve raises interest rates, dampening demand for riskier assets.
The forint was the hardest hit due to twin deficits in Hungary and Budapest’s dispute with the European Union blocking stimulus funds.
It touched a record low of 416.90 for one euro in July. It has since recovered 4.5% but remains down more than 7% since the start of the year.

In the poll, the forint, which closed at 399 per euro on Tuesday, was seen weaker at 404.0 per euro in a month before gaining 1.4% overall to 393.34 in a year.

“(Hungarian central bank) hawkishness and a rising rate differential should shield the forint from another significant move above the 400 level, but that will not be enough for a prolonged strengthening below this level,” said ING economist Peter Virovacz.

He added that progress in negotiations with the EU could provide a spark.

In Poland, the region’s largest economy, the zloty has also returned to moderate gains after falling nearly 3% so far this year. The poll’s median forecast saw the zloty at 4.65 to the euro in 12 months, up 1.6% from Tuesday’s closing levels.

The Czech koruna, which has been more stable than its peers as the central bank intervened against easing pressures since May, is expected to rise 0.6% next year to 24.50 per euro, but is still expected seeing weakness for most this year.

As other Central European central banks use interest rate hikes to tame inflation, markets are divided on the likelihood of Czech policy tightening as a revamped board heads by a new governor who opposed higher rates meets Thursday for the first time.

The poll saw the Romanian leu remain an outlier and remain under pressure. It was expected to drop around 3% to 5.075 per euro over the next year.
Source: Reuters (report by Jason Hovet; editing by Christina Fincher)

Mary I. Bruner