Central and Eastern Europe has a quiet data calendar. The focus is on Hungary and the National Bank of Hungary (NBH). The NBH is expected to restart rate cuts with a 25bp move to 6.25%. This would be the first cut since September 2024.
More cuts are likely, including another move in March. Markets will focus on the NBH’s forward guidance to judge what comes after February.
Hungary Rate Outlook
US trade headlines could drive risk-off sentiment and pressure regional currencies. A weaker US dollar may offset some of this pressure. Recent regional rate moves may also help keep CEE currencies more stable.
EUR/HUF is expected to test carry positioning as the NBH resumes cuts. Markets are fully pricing in rate cuts in both February and March.
EUR/HUF returned to 378 last week, a two-year low. The rate cut could push the pair higher. In the past, higher levels have often been used to rebuild forint long positions.
Hungary’s inflation has dropped from a 2023 peak above 25% to 3.8% last month. We therefore expect the NBH to restart its easing cycle tomorrow. The market has fully priced a 25bp cut, which would take the policy rate to 6.25% for the first time since the cycle was paused in September 2024. For traders, the key will be the bank’s forward guidance, as we expect another cut to follow in March.
Positioning And Volatility
The forint carry trade has performed strongly. It is supported by an interest rate gap versus the Eurozone that is still above 3 percentage points. This has repeatedly pulled EUR/HUF lower, with the pair hitting a two-year low near 378 last week. The coming rate cut is the first real test of this positioning. Even so, the market has often stepped in to buy the forint when it weakens.
Wider market sentiment also matters. Recent US trade headlines typically hurt emerging market currencies. However, a weaker US dollar should help. The DXY index has fallen from 105 to 102 over the past month. This dollar weakness can soften the impact of risk-off moves and support regional FX.
Because the cut is widely expected, some derivative traders may look for ways to benefit from low near-term volatility, such as selling short-dated EUR/HUF straddles. The bigger risk (and opportunity) is a surprise in the NBH statement. Buying low-cost, out-of-the-money EUR/HUF call options can offer protection—or upside—if the NBH signals a more dovish path and EUR/HUF jumps.
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