... is getting increasingly difficult at the moment. Take Hungary for example. I take it that most economic commentators and analyst know that it is bad in Hungary and together with Ukraine I would submit that these two face the largest risk of sporting the next global macro blowout (assuming that Russia does not suddenly collapse prematurely).
Hungary's biggest problem at the moment is how on earth to stay worried about a dropping Forint while at the same time realizing that the country is headed towards the worst recession in several decades. As some readers will remember the reason that the Forint today is subjected to full force of currency punters is to be found one year ago. Back in February, Hungary as well as other emerging markets opted to loosen their pegs towards the USD, the Euro or both in an attempt to "allow" the currency to appreciate to quell the inflation everybody was so focused on at the time
The Hungarian forint tumbled to a record low against the euro as risk aversion spread and concern deepened the economic slowdown will worsen. The forint extended this year’s decline to 11.4 percent, the second-biggest drop among emerging-market currencies tracked by Bloomberg, as Hungary heads towards its worst recession in 15 years. The country was the first European Union member to seek international aid to avert a default last year, prompting a 20 billion-euro ($26 billion) emergency loan from the International Monetary Fund, the World Bank and the European Union.
“The forint is being dragged down by negative regional news,” said Nigel Rendell, senior emerging-markets strategist at RBC Capital Markets in London. “The weakening of the Russian ruble and the bank nationalization in Kazakhstan are weighing on the markets. They “may test the resolve of the central bank in Hungary” and in Russia, he said.
The forint dropped as much as 1.5 percent to 300.37 against the euro and was at 299.60 at 12:54 p.m. in Budapest. It earlier broke through the key 300 per euro level, where option barriers were set, according to BNP Paribas. The level at which the forint is trading is of “extreme concern,” Prime Minister Ferenc Gyurcsany said yesterday after a meeting with central bank President Andras Simor.
As we can see from the added graphics, the Forint has indeed taken a solid beating and in light of the fact that Hungary still have those Swiss denominated mortgages makes the depreciating currency sheet poison.
What happens next is indeed a good question. According to Danske Bank the Eur/huf may very well go beyond the 300 mark.
