Hungarian Forint Rally Against the Euro Could Continue, Says ING

Analysts at ING Bank believe the Hungarian forint’s recent rally against the euro may have further room to run, citing improving fundamentals and a shift in market sentiment toward Central and Eastern European currencies. The forint has strengthened notably in recent weeks, recovering from multi-month lows as investor confidence in Hungary’s economic outlook improves.

What’s Driving the Forint’s Strength?

The forint’s appreciation is largely attributed to expectations of substantial European Union fund inflows, which are set to bolster Hungary’s current account and foreign exchange reserves. ING notes that the disbursement of EU recovery funds, previously frozen due to rule-of-law concerns, is now seen as increasingly likely following Budapest’s concessions. This has reduced the country’s external vulnerability and supported the forint.

Additionally, the Hungarian central bank has maintained a relatively hawkish monetary policy stance, keeping interest rates elevated compared to the eurozone. This interest rate differential continues to attract carry trade flows, further underpinning the currency. The National Bank of Hungary has also signaled a cautious approach to rate cuts, prioritizing inflation control over growth stimulation.

Key Levels to Watch

ING’s technical analysis suggests the EUR/HUF pair could test the 380 level in the coming weeks, a psychological barrier that has held firm since early 2024. A decisive break below this level would open the path toward 370, a level not seen since mid-2023. On the upside, resistance is seen at 395 and then 400, where the central bank may intervene to prevent excessive weakening.

The bank emphasizes that the rally is not without risks. Global risk sentiment, energy price volatility, and any deterioration in EU-Hungary relations could quickly reverse gains. The forint remains sensitive to external factors, given Hungary’s open economy and reliance on foreign capital.

Broader Implications for Investors

For investors, the forint’s strength presents both opportunities and risks. Exporters may face headwinds as a stronger currency makes Hungarian goods more expensive abroad. However, importers and consumers benefit from lower costs for foreign goods and energy. The rally also improves the outlook for Hungarian government bonds, as a stable currency reduces the risk premium demanded by foreign investors.

ING advises clients to monitor EU fund disbursement timelines and any changes in central bank rhetoric. A faster-than-expected release of funds could accelerate the forint’s gains, while a renewed political standoff with Brussels would likely trigger a sharp reversal.

Conclusion

The Hungarian forint’s rally against the euro appears to have solid fundamental support, driven by EU fund inflows and a hawkish central bank. While risks remain, ING’s analysis suggests the currency has further upside potential. Investors should watch key technical levels and political developments closely. The forint’s trajectory will serve as a barometer for Hungary’s economic recovery and its relationship with the European Union.

FAQs

Q1: Why is the Hungarian forint strengthening against the euro?
A1: The forint is strengthening primarily due to expected inflows from European Union recovery funds, a hawkish central bank maintaining high interest rates, and improving investor sentiment toward Central and Eastern European currencies.

Q2: What is the EUR/HUF exchange rate target according to ING?
A2: ING analysts suggest the EUR/HUF pair could test the 380 level in the near term, with a potential move toward 370 if the rally continues. Key resistance is at 395 and 400.

Q3: What risks could reverse the forint’s rally?
A3: Key risks include a deterioration in EU-Hungary relations, a spike in global energy prices, a shift in global risk sentiment, or a faster-than-expected easing cycle by the Hungarian central bank. Any of these factors could trigger a sharp reversal in the forint’s value.