Forex News

ING strategist Frantisek Taborsky says the National Bank of Hungary (NBH) delivered an expected pause in rate cuts and lowered its inflation target to 2.5%, creating a supportive backdrop for the Hungarian Forint. He sees scope for further curve flattening and potential retest of 360 EUR/HUF, but stresses that global Dollar strength, energy prices and Fed hikes could easily dominate the FX outlook.

NBH stance supports but globals constrain

"The National Bank of Hungary meeting delivered exactly what the market expected – a pause in the rate-cutting cycle and a reduction of the inflation target from 3.0% to 2.5%. From the market's perspective, this was a case of ticking boxes that had been anticipated since the April general election."

"We believe the market would not hesitate to price in rate hikes at the front end of the curve if energy prices rise again and Hungarian inflation climbs in the coming months (NBH forecast of 3.1% average inflation for next year). Meanwhile, the long end still offers room for convergence trades, and long-term yields should grind lower."

"The combination of a lowered inflation target and a halt to rate cuts creates a very positive environment for the FX market. On the other hand, the global backdrop remains largely negative, despite the recent relief rally. The US dollar is at record strength, EUR/HUF remains highly sensitive to energy prices, and Fed rate hikes could trigger renewed pressure on emerging market currencies, which have shown remarkable resilience so far. "

"The overall picture is thus very mixed, and global factors could easily take the driver's seat. Although our bias remains bullish for the forint, and we could retest the 360 EUR/HUF level, further developments are heavily dependent on global factors at this moment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

German flash HCOB Manufacturing PMI has come in lower at 53.8 in September. The data was expected to arrive higher at 54.5 from 54.3 in August. However, the overall business activity remain stronger-than-expected due to robust Services PMI data. The Composite PMI jumps to 53.8 rom the previous reading of 51.8. The Services PMI returns to the positive territory, arriving at 52.9 from 49.7 in August. A figure above 50.0 is considered as expansion in the business activity.

"German businesses reported further signs of resilience in September, with output growth picking up speed, expectations towards the outlook holding steady and employment rising for a second month running, all despite renewed pressure on the inflation front," Phil Smith, Economics Associate Director at S&P Global Market Intelligence said.

Market reaction

The initial reaction by the Euro (EUR) remains muted despite strong German Composite PMI data. At press time, EUR/USD is down 0.22% to near 1.1424 due to US Dollar's (USD) outperformance.

Deutsche Bank strategists note that United States (US) equities finished virtually flat, as strength in technology and semiconductor stocks offset a sharp decline in financials. The NASDAQ reached a fresh all-time high, while concerns that AI could pressure margins and fees weighed on financial shares. European equities were mostly modestly higher, while Asian markets traded mixed and US equity futures remained near flat.

Tech strength and financials weakness

"Despite the volatile newsflow, equities ended the day little changed, with the S&P 500 down a mere -0.001%. Tech stocks saw a better performance, with the NASDAQ (+0.45%) moving up to a fresh all-time high."

"That included further strong gains for chip stocks, with the Philly semiconductor index (+2.06%) posting a 6th consecutive gain. Trump himself also commented on AI in his speech at the UN, terming it “super intelligence” and rejecting attempts to control it. By contrast, financials (-1.98%) led the declines within the S&P 500, which appeared to be driven by concerns that AI could erode margins and fees."

"In Europe, equities mostly saw modest gains, with the Stoxx 600 (+0.13%), CAC 40 (+0.20%), and DAX (+0.02%) rising. The exception was the UK’s FTSE 100, which fell -0.29%."

"Turning to Asia, markets are mixed this morning. As I check my screens, the KOSPI (+0.45%) is posting a moderate gain, with Japan’s markets still closed until tomorrow. Elsewhere, Chinese equities are under pressure, with the Hang Seng (-0.74%) underperforming both the CSI 300 (-0.50%) and the Shanghai Composite (-0.36%). Meanwhile, Australia’s S&P/ASX 200 (+0.08%) is little changed. US equity futures are also trading near flat, with those on the S&P 500 up +0.09%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)