USD/HUF forecast: will the uptrend continue in 2022?
The US dollar to Hungarian forint (USD/HUF) price rose last Thursday after Hungary’s central bank, the Magyar Nemzeti Bank (MNB), held its effective key interest rate unchanged at 4%, marking it the highest nominal rate in the EU. Since mid-November, policy makers have increased the one-week deposit rate by 220 basis points over seven consecutive weekly hikes that boosted the forint in the early part of January. The base rate stands at 2.4%.
The Hungarian central bank is scheduled to hold its monthly rate-setting meeting on 25 January. Analysts expect the base rate to be hiked by another 30 basis points to 2.7%, the highest level in nearly eight years, in a bid to control inflation.
If you’re interested in learning more about the USD to HUF forecast read on for our analysis and analysts predictions.
Hungarian inflation remained at a 14-year high of 7.4% year-on-year in December, after reaching the same level in November. Core inflation, which excludes energy and food prices, surged to a 20-year high of 6.3%. Historically, Hungary has experienced severe hyperinflation, which reached 35% during the 1990s.
The US is also struggling with inflation, underscored by recent US consumer price index (CPI) figures released by the US Bureau of Labor Statistics. The CPI is an inflation gauge that measures the average change over time in the price paid by consumers for a basket of consumer goods.
The US CPI rose by 7% in the 12 months through December, exceeding forecasts and marking its highest increase since 1982. The news increased pressure on the US Federal Reserve (Fed) to tighten monetary policy.
In December, the Fed signalled plans to raise interest rates by three-quarters of a percentage point and shrink its $8.9trn balance sheet in 2022. The balance sheet expanded massively over the prior two years after the Fed began an unlimited bond-buying program to support markets during the Coronavirus pandemic.
In a news conference following the December Federal Open Market Committee (FOMC) meeting, Fed Chair Jerome Powell stated that with elevated inflation pressures “the economy no longer needs increasing amounts of policy support”. He added that “a quicker conclusion of our asset purchases will better position policy to address the full range of plausible economic outcomes”.
Financial markets are now pricing in at least three rate hikes this year. Investors expect the Fed to begin raising interest rates in March and start reducing its asset holdings shortly after.
The US dollar sank earlier this month after the US employment report for December painted a mixed picture. Payrolls rose by only 199,000, missing analyst estimates of 422,000 by a wide margin. However, the unemployment rate fell to 3.9%, beating forecasts of 4.1%. US unemployment reached a 50-year low of 3.5% in February 2020.
At the close of trading last Friday, the S&P 500 and Nasdaq indices had suffered their worst weekly losses since March 2020, amid disappointing earnings results and the prospect of aggressive policy from the Fed in taming inflation.
January’s FOMC meeting is scheduled to take place on 25 January and 26 January, during which investors will be looking for further guidance on the central bank’s plan to raise interest rates.
Analysts do not expect a change in policy rates, currently between 0% and 0.25%, at the January meeting. At least for the early months of 2022, the Fed’s hawkish stance is widely viewed as likely to support the dollar against other major and emerging market currencies.
April 2022 elections
Some of the biggest USD/HUF news affecting the pair’s outlook is the upcoming Hungarian parliamentary election taking place on 3 April. Prime Minister Viktor Orbán and his nationalist Fidesz party face a united opposition alliance. Orban won reelection in both 2014 and 2018. The Fidesz party is known for its conservative stance on social issues, Eurosceptic attitude towards European integration and right-wing populism.
The opposition alliance includes the Democratic Coalition, the Socialist Party and the conservative Jobbik Party. The leader of the coalition is Péter Márki-Zay, who has been mayor of the city of Hódmezővásárhely since 2018. Hungary's opposition plans to reduce taxes for people with low incomes, crack down on corruption and prepare the country for adopting the euro. The latest polls show a close race. Fidesz is not expected to win the large majority it achieved in 2018. Uncertainty around the election could trigger increased volatility in the USD/HUF and put the forint under pressure in the coming weeks.
USD/HUF technical analysis
Looking at the dollar to forint daily chart, we can see that the pair has been in an uptrend since June of 2021 and that a defined trendline can be drawn, representing potential support to the downside.
The USD/HUF is down 2.59% year to date, but the pair has appreciated 7.60% from a year ago.
The technical picture over a longer time frame on the monthly chart shows that the pair has been in a steady uptrend since July 2008, in the midst of the global financial crisis. Broadly speaking, this supports the long-term bullish case for the USD/HUF.
USD/HUF outlook for 2022
Analysts widely expect that the US dollar will remain strong in the early part of 2022, supported by expectations of monetary tightening from the Fed. The Fed’s hawkish stance relative to other major central banks, such the European Central Bank (ECB) and the Bank of Japan (BOJ), further supports this view.
However, some analysts suggest that emerging market currencies such as the forint have already priced in a tighter Fed policy environment and that a peak in US growth would increase the appeal of developing economies and their currencies to investors.
In a Bloomberg Quint article, Claudia Calich, head of emerging-market (EM) debt at M&G Investments, stated:
Speaking about the USD to HUF forecast, Yohay Elam, senior analyst at FXStreet, commented:
Rising tensions between Russia and Ukraine could also have an impact on the USD/HUF. A conflict between Russia and Ukraine could cause natural-gas prices to spike, which is viewed as positive for the US dollar against the euro. The US dollar would also likely benefit against emerging market currencies due to its safe haven status. Other safe-havens in times of geopolitical instability include gold and the Japanese yen.
Note that analyst forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
What drives the value of the Hungarian forint today?
Central bank interest rates, real gross domestic product (GDP) levels, the inflation rate and the degree of political stability are among the leading factors influencing the forint.
What drives the value of the US dollar?
Major forces affecting the US dollar include US Federal Reserve monetary policy, the balance of trade, the inflation rate, and economic indicators such as GDP and reserve currency status.
When to trade USD/HUF?
USD/HUF sees most volatility and potential trading opportunities during European trading hours and at the time of major economic releases from both Hungary and the US.
Will USD rise against HUF?
A tighter Fed policy stance supports the US dollar and any unexpected increase in the hawkish stance could further boost the greenback.