Hungary's forint firmed to an 8-week high versus the euro on Thursday even as the National Bank of Hungary unexpectedly left its one-week deposit rate unchanged, halting a series of weekly rate hikes.
The forint initially dropped over half a percent to 363.30 after the central bank announced the one-week rate would remain unchanged at 4%, but it quickly regained ground. The currency was up 0.12% on the day, trading at 360.90 per euro, after hitting an 8-week high of 360.54.
"This step does not look good at first sight as it goes against the communication of the central bank a little bit, although the forint's strength could justify it," an FX trader in Budapest said.
"But the most important question is how close to the one-week deposit rate the central bank will raise the base rate at its January 25 monthly rate meeting."
The forint has gained over 2% since the start of the year, supported by higher central bank rates, traders have said.
The NBH uses the one-week rate to tackle short-term market volatility and it is above the base rate of 2.4%.
Hungarian government bond yields did not immediately move after the decision as investors were waiting to see how the forint would react, a fixed-income trader said.
The yield on the 10-year bond was about 4.65%.
Elsewhere, the Czech crown firmed 0.12% to 24.559 versus the common currency.
Stocks in the CEE region weakened, tracking European equities that sank over 1% as hawkish signals from the U.S. Federal Reserve meeting minutes dented global investor sentiment. read more
Bucharest (.BETI) led losses as it shed 1%. Budapest (.BUX) was 0.9% lower while Prague (.PX) eased 0.5%.
Markets in Warsaw were closed for a national holiday.
"This step does not look good at first sight as it goes against the communication of the central bank a little bit, although the forint's strength could justify it," an FX trader in Budapest said.
"But the most important question is how close to the one-week deposit rate the central bank will raise the base rate at its January 25 monthly rate meeting."
The forint has gained over 2% since the start of the year, supported by higher central bank rates, traders have said.
The NBH uses the one-week rate to tackle short-term market volatility and it is above the base rate of 2.4%.
Hungarian government bond yields did not immediately move after the decision as investors were waiting to see how the forint would react, a fixed-income trader said.
The yield on the 10-year bond was about 4.65%.
Elsewhere, the Czech crown firmed 0.12% to 24.559 versus the common currency.
Stocks in the CEE region weakened, tracking European equities that sank over 1% as hawkish signals from the U.S. Federal Reserve meeting minutes dented global investor sentiment. read more
Bucharest (.BETI) led losses as it shed 1%. Budapest (.BUX) was 0.9% lower while Prague (.PX) eased 0.5%.
Markets in Warsaw were closed for a national holiday.