Trading The Hungarian Forint: What To Know

Some of you may not know that the Hungarian forint (HUF) is the official currency of Hungary. The Hungarian forint is not one of the most traded currencies in the world like the US dollar or the British pound. However, trading the Hungarian forint against major currencies isn’t anything unusual in the trading world. Although Hungary is a relatively small economy in Europe, it is trying to improve its place and status.

If you would like to read more about trading the Hungarian Forint and the Hungarian economic prospects, please read our blog.

The Hungarian Economy And The Forint

For many years, Hungary belonged to the eastern European bloc which, among others, meant serious limitations weighing on economic activity and weakness to follow and compete with modern economies. With the collapse of the bloc over 30 years ago, Hungary struggled to find its way in terms of economic progress as it had to cover a lot of ground to improve its capabilities.

However, things changed with Hungary’s geostrategic location in the centre of the continent playing a vital role. Hungary is currently ranked 58 among the major economies. In the Global Innovation Index, Hungary ranked 34th in 2022 with 39.8 points. The Hungarian Investment Promotion Agency (HIPA) noted that “foreign investors’ trust placed in the Hungarian economy is unbroken as evidenced by an investment volume of EUR 6.5 billion in 2022, an all-time high in the history of investment promotion in Hungary. In total 92 large FDI deals were closed to create some 15,000 new jobs and retain tens of thousands of them.”

The Hungarian National Bank (Magyar Nemzeti Bank - MNB) is the central bank of Hungary, established in 1924. According to its website, its mission is to “achieve and maintain price stability. (...) Without prejudice to its primary objective, the MNB shall support the maintenance of the stability of the system of financial intermediation, the enhancement of its resilience, its sustainable contribution to economic growth; furthermore, the MNB shall support the government’s economic policy and its policy related to environmental sustainability, using instruments at its disposal.”

The MNB is also responsible for issuing the Hungarian forint. The forint took its name from the Italian city of Florence while the word was used by Hungarians, during the Austro-Hungarian era, to describe the imperial currency which was called “Gulden” in German. In 1946, just after the end of World War II, the MNB introduced the forint.

Hungary has not specified when and if it will adopt the euro. The current MNB governor has suggested that he wouldn’t like to give up the country’s independence when it comes to corporate taxation. According to a Reuters report, “Finance Minister Mihaly Varga said Hungary was working to meet the conditions of euro entry but had no target date to adopt the single currency and the issue was not on the agenda for now.”

Hungarian Forint Performance

The Hungarian forint has seen better days against the US dollar and the euro. As you can see in the USD/HUF monthly chart below, the Hungarian currency was performing well until the beginning of 2022 trading under the HUF 335 mark against the dollar.

Unfortunately, the next 6 months weren’t good for the Hungarian Forint which weakened significantly, trading at a multi-year low (HUF 431) against the dollar in December 2022.

The culmination of negative news coming from the EU economies and the Hungarian central bank’s easing monetary policy and continuing to cut its interest rates have hurt the Hungarian forint which has lost ground once again against the US dollar and the euro since mid-July.

What Do Analysts Say About The Hungarian Forint and Hungary’s Monetary Policy?

The European Commission (EC) suggested in a report that “the inflation rate is set to ease in the subsequent quarters, driven by base effects, lower commodity prices, the recent currency appreciation and weak consumer demand. The annual average inflation rate is projected to increase from 15.3% in 2022 to 16.4% in 2023, and then drop to 4.0% in 2024.”

The MNB is currently fighting the EU's highest inflation rate, running at an annual 20.1% in June, while the economy is slowing down. The bank has launched a policy-easing cycle as high interest rates have practically stifled borrowing. In its latest board meeting, the MNB policymakers reduced interest rates, stressing that the favourable environment allows monetary policy easing but added that “tight monetary conditions are warranted in the current environment in order to achieve price stability.”

Commenting on the MNB’s decisions, ING analysts wrote in a report published on July 25th: “The September rate setting meeting will be also key due to the new Inflation Report, containing the updated inflation outlook of the central bank. The new forecast will give the hinterland for the NBH to decide about and maybe reveal its master plan regarding the next phase of the easing. In the spirit of cautiousness, our base case scenario sees a verbal signalling in September about the upcoming new phase, continued with a symbolic step in October.”

Analysing the Hungarian forint’s outlook in a report released on July 11th, Commerzbank’s analysts said: “we forecast the Forint to regain some ground by the end of the year because inflation is likely to moderate faster than the pace at which MNB will cut rates, and the real interest rate will therefore become less negative – in this window, we see EUR/HUF in the 365 range. But, we forecast a weaker forint subsequently in 2024 because: Hungary is more inflation-prone than Poland or the Czech Republic, which will depress Hungary’s real interest rate once again when inflation proves stubborn in 2024. The situation surrounding Hungary’s disputes with the European Commission on EU funds continues to be precarious. The latest government guidance suggests that such conditionalities are not about to be met soon. High risks prevail in this regard.”

Economists at Erste Bank suggested that “recent comments from Finance Minister Varga, that a stable and not weaker currency should be in the interest of Hungary, could indicate that the government will not call for any excessive monetary easing, which could potentially lead to a weaker HUF.”

Managing Risks When Trading The Hungarian Forint

Now that you have learnt some valuable information regarding the Hungarian forint, you might be thinking about adding it to your trading portfolio. However, as you may be a beginner trader you should keep in mind that trading involves risk. This means that good preparation and thorough studying of trading techniques and strategies could bring you closer to your goals.

A wide array of educational materials, is available online, to help you learn how trading works and how risk management tools can help you mitigate risk. All you have to do is find them and dedicate some time to learning how trading works and how you can minimise risks. E-books and blogs for reading lovers, webinars or podcasts are there for you so why don’t you take advantage of them?

As a broker with more than 20 years in the market, we can’t stress enough that beginner traders should know how risk management tools (such as the stop-loss order) work. Building your trading strategy should include utilising these tools that can help you mitigate risks in case markets move against you.

Does trading on macroeconomic news interest you? Learn how this approach works with our free webinars. Meet and interact with expert traders. Watch and learn from live trading sessions.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.