Forint reaches historic low against dollar

January 5, 2015

Free fall

The Hungarian forint reached a historic low of just over 268 to the US dollar this morning before strengthening slightly to 266.4 Ft.


The forint has lost roughly 10 percent of its value against the dollar over the past three months.


Hungary’s currency has lost 5 percent of its value against the euro over the past six weeks.


After spiking to 320.4 Ft this morning Hungary’s currency strengthened to around 318 Ft to the euro before weakening to 318.8 Ft to the euro.chart-4.php


In addition to the impact on the forint of the dramatic fall of the Russian ruble, HVG Online cited four significant factors in the recent historic fall:

  1. The bad performance of the Eurozone in general and financial insecurity generated by ECB president Mario Draghi’s proposal to raise interest rates in order to offset deflation.
  2. Improving US economic performance has caused the dollar to strengthen against the euro causing a two-fold fall of the forint against the dollar and the euro.
  3. Markets are nervous over the prospect of  far-left Siriza party winning upcoming Greek parliamentary elections.  Sires wants the country to leave the euro-zone and says it will refuse to repay the EUR 240 billion IMF – EU loan. This has a risk-effect on the economies of non-eurozone EU member states as well.
  4. The Hungarian managerial acquisition index published on Monday indicated that Hungarian industry had performed worse in 2014 than projected.

Even though the fall is not unique to Hungary (the Polish zloty has been similarly affected), HVG notes that the monetary and economic policies of the Hungarian government combined with a rapidly weakening currency puts the whole economy at risk. Central Bank governor György Matolcsy has emphasized on many occasions that it is not his intention to raise the record-low base rate.

Hungarian state bond holders are mostly US investment companies (primarily Franklin Templeton Investments) are likely to be adversely affected by the weakening of the forint against the dollar, many having borrowed dollars in order to purchase forint based securities.

In addition to being a problem for Hungarian manufacturers and exporters, a weaker forint is also problematic for the state itself.  Roughly 40 percent of Hungary’s national debt is denominated in euros, dollars, or other western currencies.