Central and Eastern Europe has a light data schedule, with attention on Hungary and the National Bank of Hungary (NBH). The NBH is expected to restart rate cuts with a 25bp move to 6.25%, the first cut since September 2024.
Further cuts are expected, including another move in March. Markets are expected to focus on NBH forward guidance to gauge the path after February.
Hungary Rate Outlook
US trade headlines may set a risk-off tone, which can pressure regional currencies. A weaker US dollar may partly offset this, while recent regional rate moves may help keep CEE currencies steadier.
EUR/HUF is expected to test carry positioning as the NBH resumes cuts. Markets are fully pricing rate cuts in both February and March.
EUR/HUF revisited 378 last week, a two-year low. The rate cut could push the pair higher, with higher levels previously used for renewed forint long positions.
With Hungary’s inflation having fallen from its 2023 peak of over 25% to a more manageable 3.8% last month, we expect the National Bank of Hungary to restart its easing cycle tomorrow. The market has fully priced in a 25 basis point cut, which would take the main policy rate to 6.25% for the first time since the cycle was paused in September of 2024. The key for traders will be the bank’s forward guidance, as we anticipate another cut will follow in March.
Positioning And Volatility
The forint carry trade has been very profitable, fueled by an interest rate differential over the Eurozone that still sits above 3 percentage points. This has consistently pushed the EUR/HUF pair down, with it testing a two-year low near 378 just last week. The upcoming rate cut is the first significant test of this positioning, but the market has repeatedly shown a willingness to buy the forint on any sign of weakness.
Broader market sentiment remains a factor due to recent US trade headlines, which typically hurts emerging market currencies. However, a weaker US dollar, which has seen the DXY index fall from 105 to 102 over the past month, should provide a cushion for the forint. This dollar weakness helps offset some of the risk-off mood and supports regional currencies.
Given that the rate cut is expected, derivative traders might consider strategies that benefit from low immediate volatility, such as selling short-dated EUR/HUF straddles. The real opportunity lies in positioning for a surprise from the NBH’s statement. Buying cheap, out-of-the-money EUR/HUF call options would be a prudent way to protect against, or profit from, any unexpectedly dovish forward guidance that could cause the pair to spike higher.
