ING economists Peter Virovacz and Zoltán Homolya said the Hungarian forint (HUF) has appreciated sharply, and that markets now price Hungary more like a quasi-eurozone economy. They expect policymakers to lean towards FX stability rather than encouraging further HUF gains, with EUR/HUF guided towards an estimated fair value range of 360–370.
The economists described the move as rapid for an export-oriented economy, stating the HUF has strengthened by 11–12% since mid-March. Over the past two years it has risen by around 15%, a pace they said would breach ERM II volatility criteria, and they added that domestic economic actors were not prepared for such a shift after years of depreciation. They also pointed to potential negative consequences from continued real appreciation, arguing this increases the likelihood that the central bank and government will seek to cap further strengthening through a steadier FX path.
Forint Strength Seen as Overdone; Policymakers Likely to Seek Stability
Given the forint’s dramatic 15% appreciation over the last two years, we believe its strength is now overdone. Investors have shifted their view, treating Hungary almost like a eurozone economy, pushing the EUR/HUF pair below 360. This rapid move is a significant shock to an export-oriented economic structure that was unprepared for such a reversal.
We anticipate that policymakers will act to ensure stability rather than allow further forint gains, likely guiding the exchange rate towards a 360-370 fair value band. Recent data supports this view, as April’s export growth showed signs of slowing, a potential early indicator of the strong currency’s negative impact. Furthermore, comments from central bank officials in late May have already expressed a degree of discomfort with the pace of appreciation.
Investment Strategies and Policy Outlook Amid FX Volatility
This expectation of managed stability suggests that implied volatility in the EUR/HUF options market is likely to decline from its current levels. Selling volatility through strategies like short strangles could therefore be profitable in the coming weeks. We are positioning for a period where sharp movements become less frequent as the central bank subtly signals its preference.
Considering the 360-370 range as a target, we see any dips in EUR/HUF below 360 as an opportunity to build long positions. Buying EUR/HUF call spreads is a limited-risk way to position for a rebound back into this perceived fair value zone. Historically, the central bank has successfully used verbal interventions to put a floor under the currency pair after periods of excessive strength.
The potential for policy action is reinforced by cooling inflation, which hit a two-year low of 3.4% in May’s report. This gives the central bank greater flexibility to consider future interest rate cuts if necessary to curb the forint’s strength. Such a move would add further upward pressure on the EUR/HUF rate.
