(Bloomberg) — The forint extended its drop as Prime Minister Viktor Orban’s government remained in standoffs with the central bank in Budapest on monetary policy and with the European Union on aid for Ukraine.
Hungary’s currency depreciated as much as 0.7%, briefly crossing the 390 level against the euro for the first time since early October before slightly paring losses. Other Hungarian assets took a hit as well, with the yield on 10-year government bonds rising nine basis points, while the benchmark BUX equities index dropped 1.5%.
With the central bank considering accelerating its interest rate cuts at a meeting on Tuesday, a debate over monetary policy tools has unnerved traders in the past week. In addition, the Financial Times reported that the EU was planning to raise economic pressure on Hungary over its stance on financial support for Ukraine.
The two separate spats with the EU and central bank have both weighed on the forint, analysts at OTP Bank Nyrt., Hungary’s largest lender, said in a note Monday. Strategists at Citigroup also cited both issues for closing their long forint trades against the Czech koruna and the Israeli shekel, both of which had made losses.
“We also bring our forint overweight in our model portfolio back to neutral as the carry factor gets overrun from the negative headlines,” the Citi strategists including Luis Costa wrote in the report Monday.
Read more: Forint Whipsawed on Government-Central Bank Loan Rate Clash
–With assistance from Kerim Karakaya.
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