USD7HUF hits 18-month highs above 328.00 as Central and Eastern European currencies hit by lockdown fears
- USD / CHF broke above 328.00 for the first time since May 2020 on Monday amid European lockdown fears.
- Hungarian central bank interest rate hikes have failed to prevent a weakening of the HUF in recent weeks.
The USD/HUF It hit fresh 18-month lows on Monday, and the pair briefly touched 328.00 for the first time since May 2020, rising just over 0.5% on the day. The most traded EUR / HUF pair hit a new high above 370.00 for the first time. Central European currencies have come under pressure at the beginning of the week amid concerns about lockdowns in the region spoiling the prospect of continued economic growth. The Polish zloty reached its weakest level against the euro since 2009.
On Monday, Austria became the first central and western European nation to implement a total blockade of all its citizens. Meanwhile, the Czech Republic has implemented new rules saying that only those who have been vaccinated or have recovered from Covid-19 in the past six months can enter restaurants or use other services.
A rapid rise in interest rates in Hungary and Poland has not been enough to stem the recent currency weakness, apparently reflecting concerns that the central banks of the two countries are at risk of not meeting their mandates of inflation in the medium term. For reference, the annual CPI rate in Hungary reached 6.5% in October, while the Hungarian central bank raised interest rates by 30 basis points to 2.1% last week, and rates have now risen 1.5% since June. Concerns about the region’s return to lockdown may encourage the Hungarian central bank not to raise interest rates as market participants deem appropriate to address inflation risks, risking further weakness of the HUF.
The next psychologically important level seen by the bulls for USD / HUF is at 330.00. If this breaks down, then the pair could see a run towards all-time highs just above 340.00. The backdrop of a strong dollar amid strong US data and an increasingly aggressive Fed suggests such a move could only be a matter of time.