Disinflation Dynamics and Monetary Policy Outlook
We see Hungary’s unique disinflation story continuing, with May’s inflation figure coming in at 2.8% year-on-year, just below the National Bank of Hungary’s (NBH) 3% target. This soft reading solidifies our view that the central bank will proceed with its easing cycle. The market has been anticipating this, which helps explain the forint’s recent resilience. The upcoming NBH meeting in two weeks is almost certain to deliver a 25 basis point rate cut, bringing the main policy rate to 5.25%. Given the subdued inflation, we believe the market is correctly pricing in an additional 50 to 75 basis points of cuts before the end of the year. Recent communication from the central bank suggests a cautious approach, ruling out any aggressive 50 basis point moves for now.Currency Stability and Trading Implications
Despite the prospect of lower interest rates, the EUR/HUF has shown remarkable stability, holding near the 392 level. This is largely because the NBH’s measured easing path has been well-telegraphed and is already factored into the price. This pattern is reminiscent of the 2023-2024 period, when the NBH cut rates by over 500 basis points while the forint remained in a relatively stable range. This environment of priced-in rate cuts and low currency volatility suggests a favorable setup for options traders. We believe selling out-of-the-money EUR/HUF call options is an attractive strategy to capitalize on the stable-to-strengthening forint outlook. This approach allows traders to collect premium as the pair is unlikely to break significantly higher, with our mid-year forecast still targeting a move towards 388.Start trading now — click here to create your real VT Markets account.
