The National Bank of Hungary is expected to hold rates at 6.50% in its next meeting. However, there is a projected rate cut in February, with a 60% likelihood that this will occur, according to market expectations driven by January inflation data.<\/p>\n
The EUR\/HUF is forecasted to stabilise around 385, as the market prepares for potential policy shifts. Analysts believe today’s meeting will result in no changes, marking a possible precursor to future rate cuts.<\/p>\n
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We see the National Bank of Hungary holding its policy rate at 6.50% at its meeting this week, but our focus is shifting to the strong possibility of a rate cut in February. The market is currently pricing in about a 60% chance of a cut next month, making the forward guidance from this meeting extremely important. Any dovish language could be a catalyst for repricing.<\/p>\n
The case for easing monetary policy has grown stronger over the past year. We saw headline inflation in Hungary fall dramatically from peaks above 17% in early 2025 to just 5.5% in the final reading for December 2025. This rapid disinflation gives the central bank significant room to begin a cutting cycle to support the economy.<\/p>\n
Given the uncertainty around the exact timing of the first cut, we believe buying short-term volatility on the forint is a prudent strategy. Purchasing EUR\/HUF straddles expiring after the February meeting could be effective. This position would profit from a significant move in either direction, whether the bank cuts as expected or delivers a surprise hawkish hold.<\/p>\n
For a more directional view, we see the EUR\/HUF pair likely testing levels beyond the 385 stabilization point if a clear cutting cycle is confirmed. Looking back at 2024, the pair traded comfortably above 390 for extended periods, suggesting room for further forint weakness. We consider buying EUR\/HUF call options a cost-effective way to position for this potential upside.<\/p>\n
Beyond the currency market, the expected shift in policy directly impacts interest rate derivatives. We anticipate that forward rate agreements will begin to more aggressively price in a series of cuts throughout 2026. Traders should look for opportunities to receive fixed on Hungarian interest rate swaps, positioning for lower short-term rates in the coming quarters.<\/p>\n
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