ING economists Peter Virovacz and Zoltán Homolya highlight that the Hungarian Forint (HUF) has sharply appreciated, with investors now treating Hungary as a quasi-eurozone economy. They argue that policymakers are likely to prioritise FX stability rather than further HUF gains, signalling a preference for EUR/HUF trading near an estimated fair value band instead of continued appreciation.

Forint strength seen as overdone

"Despite all the challenges, we believe that the most significant and shocking issue for an export-oriented economic structure is the substantial appreciation of the Hungarian forint. Despite geopolitical issues, the HUF has strengthened by 11-12% since mid-March. Over the past two years, it has appreciated by around 15%, which would breach the ERM II volatility criteria."

"Unsurprisingly, after years of significant weakening of the HUF, economic actors were not prepared for such a dramatic shift. Investors around the world now view Hungary as a quasi-eurozone country rather than a dumpster fire."

"As long as interest in the country remains high, there is a greater chance of further strengthening. However, both the central bank and the government are aware that such strong real appreciation of the HUF would have many negative consequences. We believe policymakers will aim for FX stability around an estimated fair value level. This could be 360-370 in EUR/HUF."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)