BNY’s Head of Markets Macro Strategy, Bob Savage, expects rate cuts from the Bank of Israel and the Hungarian National Bank. Inflation is falling, while both currencies remain strong. He says the Israeli shekel (ILS) and Hungarian forint (HUF) are acting like a form of tightening. The key issue is whether any easing is a short-term precaution or the start of a longer cycle. In Israel, the Bank of Israel meets on Monday, February 23. Markets expect a cut to 3.75% after a surprise move in January. Inflation has been negative month over month for three straight months and is expected to stay below 2.0%.

Israel Rate Decision And Shekel Tightening

The report says domestic activity is strong, while USDILS is near multi-year lows. It also notes that the small rate gap versus the U.S. Federal Reserve may limit capital outflows. In Hungary, the Hungarian National Bank meets on Tuesday, February 24. A 25bp cut to 6.25% is expected. January inflation pushed the annual rate to its lowest level in almost eight years. The report also calls the forint a source of tightening. It says the currency’s performance has become less tied to rate gaps versus the euro, and adds that there is room for more cuts. The article says it was created using an AI tool and reviewed by an editor.

Trading Implications For Israel And Hungary

With the Bank of Israel deciding on rates today, the expected cut to 3.75% looks like a direct response to January’s low inflation reading of 1.8% and the shekel’s ongoing strength. USD/ILS has held near 3.25, a level it has not sustained since 2021. That strength tightens financial conditions more than the central bank likely wants. Markets have largely priced in this move. Because the outcome looks predictable, implied volatility in USD/ILS options seems high. That may create an opportunity to sell near-term volatility. The central bank’s move is more likely to steady the currency than to cause a fresh shock. The small rate differential versus the U.S. Federal Reserve also supports this view, since it limits the risk of large outflows that could weaken the shekel. Attention then shifts to the Hungarian National Bank tomorrow. Markets expect a 25bp cut after inflation fell to 2.9% in January, a near eight-year low. The forint has been a major part of the story, with EUR/HUF trading around 370. That is much stronger than the levels seen in early 2025. The main question is not whether the bank cuts, but how quickly it cuts after that. Unlike Israel, Hungary faces more uncertainty about the size and speed of the easing cycle. Because of that, buying volatility may make more sense. The MNB’s guidance could surprise markets and trigger a large move in the forint. The bank also has room to cut rates more aggressively if it chooses. As a result, traders could consider buying one-month EUR/HUF straddles or strangles ahead of the announcement. This trade should benefit if the MNB signals either a faster or a slower cutting cycle than the market expects, leading to a sharp move in the exchange rate. It is a direct way to trade uncertainty around the central bank’s next steps. In 2025, strong currencies in both countries were a defining theme. They outperformed expectations, helped push inflation down, and tightened financial conditions. Now the central banks are starting to unwind that currency-led tightening. The setup points to a controlled easing in Israel, and potentially a more volatile path in Hungary. Create your live VT Markets account and start trading now.

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