Markets welcomed Moody’s decision to maintain Hungary’s sovereign rating with a negative outlook, seeing the risk of a downgrade as already priced in after higher fiscal targets were announced. Despite a potentially cautious Fitch review, optimism around a Ukraine peace agreement is helping the Hungarian Forint (HUF) push to new lows against the Euro (EUR), with 380 likely to be tested soon, ING’s FX analyst Frantisek Taborsky notes.
EUR/HUF tests new lows amid market optimism
“Moody’s decision on Friday to leave the sovereign rating unchanged, including a negative outlook, was received positively by the market. Apparently, the market saw the risk of a downgrade as realistic after the government raised fiscal targets for this year and next year to a 5% GDP deficit. It seems that one milestone is behind us, but Hungary is not out of the woods yet.”
“This Friday will be the Fitch rating review. Fitch was more optimistic about the fiscal situation than Moody’s, and, therefore, the government’s review causes a larger deviation from the forecast. Moreover, Fitch still has a ‘stable’ outlook for the rating, which makes Hungary more sensitive to any changes in the fiscal path. The question is whether the market becomes more optimistic after Moody’s decision or priced in these differences and a possible deterioration in Fitch’s outlook, which is our baseline, could change the current optimism.”
“EUR/HUF jumped below 381 yesterday, new lows, and as we mentioned last week, testing 380 is probably just a matter of time. Although Fitch’s decision this Friday will probably be negative, it is already priced in to some extent. At the same time, the promise of peace between Ukraine and Russia will offset the potentially negative impact, in our view. The market is still pessimistic about progress in the negotiations, and a possible agreement would provide a boost to FX across the CEE region. Therefore, the short-term picture for HUF remains bullish in our view.”