(Bloomberg) -- Hungary's forint sank to an all-time low as the central bank's persistently dovish policy stance left the currency exposed against a backdrop of Brexit uncertainty and U.S.-China trade tensions.
The forint weakened beyond 330.75 per euro, the previous record posted in July last year. The currency is the worst performer against the euro so far this year among its eastern European peers, handing carry traders some of the biggest losses in emerging markets. It fell as much as 0.5% to 331.85 per euro as of 3:10 p.m. in London.
“All emerging markets are heading in this direction,” said Istvan Gondi, a currency trader at Raiffeisen Bank International AG's Hungarian unit. “The forint looked rock solid for a while, but when there's a sea of turbulence, everybody will be engulfed by waves eventually.”
Hungary's central bank has been one of the most dovish globally -- with real rates below zero -- as both the monetary authority and government use stimulus measures to support the European Union's fastest growing economy. On Tuesday, rate setters said downside risks to the inflation outlook had strengthened, signaling a potential end to any policy tightening ambitions.
Click here for a story on how Hungary's central bank has expanded its reach in the economy
While the forint has been depreciating steadily for years, the latest leg was accelerated by growing concern over the health of the global economies. The MSCI Inc.'s index of emerging-market currencies is headed for its worst month in more than seven years as investors sought the relative safety of dollar assets. With the exception of Thailand's baht, every currency declined against the dollar in August.
“The bulk of the current forint weakness is externally driven,” ING strategist Petr Krpata said in an emailed note. The spillover from a weaker currency into the monetary stance should be limited and the central bank will likely keep policy loose or even looser, he said.
To contact the reporters on this story: Marton Eder in Budapest at meder4@bloomberg.net;Alex Nicholson in Moscow at anicholson6@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Zoltan Simon, Andras Gergely
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