The Hungarian forint’s foreign exchange rate slid to its weakest versus the euro in two and a half years on concern Hungary’s bond rating will be downgraded and a Greek referendum may threaten Europe’s bailout plan.
The Hungarian forint depreciated as much as 2.2 percent to its lowest intraday level since March 2009. It traded down 1.9 percent to 309.03 per euro by 4 p.m. in London, the world’s worst currency performance today. Hungarian markets are closed for a holiday.
Global stocks sank as investors bought German bunds after Greece announced a referendum on Europe’s rescue plan, threatening to send the nation into default. Investors should sell the forint against Turkey’s lira as Hungary faces a “serious risk” of a rating cut, Societe Generale SA said.
“More pain is in the offing for forint assets,” Guillaume Salomon, a SocGen strategist in London, wrote in a report today.
Hungarian bonds tumbled, lifting the yield on the benchmark 2017 notes by 18 basis points, or 0.18 percentage point, to 7.794 percent, the highest in four weeks.
Economy Minister Gyorgy Matolcsy told Heti Valasz magazine last week Hungary faces a “real threat” of a downgrade to junk. The most-indebted eastern member of the European Union has the lowest investment-grade rating from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
“Locals, policy makers and investors, see an S&P downgrade as a done deal in Hungary,” Peter Attard Montalto, an economist at Nomura International Plc in London, wrote in an e-mail today. “The fact the government is openly talking about it is a sign we must ready ourselves for the event.”
Investors in interest-rate derivatives raised bets borrowing costs will rise in the next three months. Forward-rate agreements fixing three-month interest costs in one month jumped to 6.50 percent, headed for a two-year high, from 6.44 percent yesterday. The contract traded 37 basis points above the three- month Budapest Interbank Offered Rate, signaling expectations for a rate increase at the next central bank meeting on Nov. 30.
“A quick move higher past 306-310 per euro, or thereabout, would be met by verbal intervention,” SocGen’s Salomon said. “A move north of 315 per euro, or thereabout, would be met by a forceful response by the central bank, in the shape of an aggressive policy-rate hike.”