The Hungarian forint continued its downward trend this week after losing access to some crucial EU funds. The USD/HUF pair soared to 402.40, its highest swing since November 2022, while the EUR/HUF jumped to 413.
Hungary loses access to EU funds
The Hungarian forint maintained its downward trend after the country lost access to 1 billion euros as the conflict with the European Union escalated,
It lost 1 billion of the 6.3 billion euros that the EU froze because of concerns about its treatment of asylum seekers.
At the same time, Hungary must pay a 200 million euro fine imposed by the European Court of Justice. It is also missing 1 million euros a day from the EU, bringing the total frozen funds to 19 billion euros, a substantial amount for a country with a GDP of $212 billion.
These events are happening at a time when Hungary is in a deep recession, with the government lacking room to maneuver as the deficit stands at around 4.5%.
The most recent data showed that Hungary entered a technical recession in the third quarter, contracting by 0.7%.
Inflation has risen recently, with the headline Consumer Price Index (CPI) rising by 3.7% in November from 3.2% a month earlier. This was the second consecutive month that inflation increased.
The Hungarian Central Bank has maintained interest rates stable in the past few months. It left rates unchanged at 6.50% for the fourth consecutive month in the December meeting. Before that, it slashed interest rates from 13% in September last 2023 to fuel the economic recovery.
The concern now is that Hungary will seek to raise spending in violation of EU rules ahead of a general election in 2026. Another concern is that Orban’s turn to China for help will not work out as Beijing is fighting numerous challenges of its own as its economy slows.
Additionally, some of the top Hungarian trade partners are not doing well, especially Germany. Recent data showed that Germany has moved into a recession as the automotive sector slowed down substantially.
EUR/HUF technical analysis
The weekly chart shows that the EUR to HUF exchange rate has increased lately. It has moved to 413, close to its highest level since December 2022.
The pair has retested the upper side of the ascending channel and moved above the 50-day and 25-day moving averages. Therefore, the path of least resistance for the EUR/HUF pair is bullish. The next point to watch is 420. Later this year, the pair may soar to the 2022 high of 434.
USD/HUF forecast
USD/HUF chart by TradingView
The weekly chart shows that the USD/HUF exchange rate continued rising this week, reaching a high of 402, its highest point since November 7, 2022. It has crossed the crucial resistance point at 400, the highest point in November.
The pair has moved slightly below the 23.6% retracement level. The MACD and the Relative Strength Index (RSI) have continued rising this year. Therefore, the path of least resistance for the pair is upwards, with the next crucial level to watch being 420.
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