CEE FX: Regional currencies weaken against Euro on policy risks - Societe Generale

Societe Generale notes Central and Eastern European (CEE) currencies, including the Hungarian Forint (HUF), are set to weaken about 3% against the Euro (EUR) this week as EUR/USD falls below 1.14. The central bank of Hungary Magyar Nemzeti Bank (MNB) kept rates at 5.50% and cut its inflation target to 2.5% from 2028, aligned with Hungary’s Euro adoption goal in 2030. This hawkish signal briefly pushed EUR/HUF to its 100-day moving average and lifted 10-year HUFGB yields.

MNB stance and HUF reaction

"CEE3 currencies are on course to weaken around 3% against the EUR this week, tracking the drop in EUR/USD below 1.14."

"The MNB kept rates on hold at 5.50% and lowered the inflation target from 3% to 2.5% (starting in 2028), consistent with the country’s euro-adoption target in 2030. The hawkish signal briefly squeezed EUR/HUF to the 100dma at 359.76 and lifted 10y HUFGB yields by 11bp to 5.87%."

"EUR/PLN briefly topped 4.40 for the first time in two years after Moody’s downgraded Poland to A3 with a negative outlook, citing fiscal deterioration, large deficits and rising debt. Poland also reported a 42-second Russian helicopter airspace violation, days after PM Tusk warned that Russia was planning strikes against NATO allies."

"The 10y CZKGB yield approaches 4-year highs of 5.40% after the cabinet approved the CZK386bn budget deficit for 2027, the second largest on record. The government reintroduced fuel price regulation plus a temporary diesel excise tax cut for October."

"EUR/RON rose above 5.27 and the 10y RONGB yield exceeded 7.45% as pressure intensifiers of a ratings downgrade to junk amid political deadlock. S&P will review the rating in late October or early November but an unscheduled announcement is not ruled out. PM-designate Muresan seeks a confidence vote next Tuesday and is trying to win Social Democrat support, leaving scope for concessions."

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