• EUR/HUF drops sharply to its lowest level since February 2024 as election results in Hungary boost the Forint.
• Strong mandate for Péter Magyar fuels optimism over policy shift and EU ties.
• US-Iran tensions keep FX volatility elevated, limiting gains in the HUF.

EUR/HUF falls sharply on Monday, with the Euro weakening against the Hungarian Forint as the pair drops to its lowest level since February 2024. The Forint strengthens across the board after a landslide election victory by opposition leader Péter Magyar boosts investor confidence. At the time of writing, EUR/HUF is trading around 367, down about 2.25% on the day.

The Tisza party secured 138 seats in the 199-member parliament with 53.6% of the vote, defeating Viktor Orbán and ending his 16-year rule. Markets have reacted swiftly, viewing the result as a major shift in Hungary’s political landscape, pushing the country in a more pro-European Union direction.

With a supermajority, Péter Magyar now has the legal authority to amend the Constitution. He has pledged to restore the rule of law, tackle corruption and restore the independence of democratic institutions, while also resetting ties with the European Union.

Viktor Orbán’s exit is also seen as reducing Hungary’s alignment with Russia and easing tensions within the European Union over support for Ukraine. This has raised expectations of unlocking billions in withheld EU funds, including a previously blocked €90 billion loan package.

A latest BHH report noted that “HUF has scope to adjust higher on diminishing domestic political risk premium,” adding that Hungary’s election result is also “EUR supportive at the margin by reducing EU political fragmentation risk.”

Goldman Sachs analysts, as reported by Reuters, said that if Hungary is serious about euro convergence, one of the first steps would be to lower its inflation target from 3% to the Eurozone’s 2%.

Such a move would imply a significant decline in Hungary’s long-term yields, further supporting the Forint over time. However, gains may remain capped in the near term, with EUR/HUF paring some of the election-driven losses amid heightened volatility across FX markets due to ongoing tensions between the US and Iran after weekend talks in Islamabad failed to produce a deal.