Path Clear For Policy Easing
With May inflation confirmed by the Hungarian Central Statistical Office at a low 1.8%, well below the central bank’s tolerance band, the path is clear for policy easing. This figure, combined with core inflation also easing to 2.8%, gives the National Bank of Hungary (MNB) a strong justification to act. We anticipate a rate cut at the upcoming policy meeting on June 23rd. The current 6.25% policy rate creates a significant real interest rate that has been supporting the forint. Forward rate agreements are now pricing in an over 90% probability of a 25 basis point cut, showing the market already anticipates this move. Even after such a cut, the policy rate would remain substantially higher than the European Central Bank’s benchmark rate of 3.25%, maintaining the forint’s carry trade appeal.Currency And Options Market Implications
We believe a rate cut is already priced into the currency, preventing a significant sell-off and keeping the EUR/HUF exchange rate within a stable 355-360 range. This environment is attractive for option sellers, as 3-month implied volatility on EUR/HUF options has fallen from over 10% to a recent low of 7.5%. Therefore, selling strangles with strikes set outside of this expected range could be a viable strategy in the coming weeks.Start trading now — click here to create your real VT Markets account.
