Chinese stocks led emerging markets higher on Tuesday on Beijing’s plans to support the troubled real estate industry, while Hungary’s forint firmed ahead of an expected sharp rate hike by the European country’s central bank.
The forint firmed 0.4% to 397.61 per euro ahead of the National Bank of Hungary’s (NBH) meeting where a Reuters poll of analysts expect a hike of 100 basis points to 10.75%.
The NBH, which became the first central bank in the European Union to start raising rates in June 2021, has lifted its base rate by more than 900 basis points since then.
“We expect the NBH to raise the base rate by 125 bps… We stand on the hawkish side of the market given that we are still waiting for inflation to peak in Hungary. Moreover, the NBH is clearly the most open central bank to further rate hikes in the CEE region at the moment,” said ING FX strategists Francesco Pesole and Frantisek Taborsky.
“Even if we see some positive momentum for the forint, we do not expect it to be long-lived… it should stay around the 400 level or rather above it.”
Elsewhere in the region, the Polish zloty rose 0.4%, while the Czech crown added 0.1%.
Current levels in the CEE currencies show increased sensitivity to Wednesday’s U.S. Federal Reserve decision, which may trigger another sell-off in the region, the strategists added.
Markets have been in a wait-and-see mode ahead of Wednesday’s decision, where a 75 basis point is seen as likely, with markets pricing about a 10% risk of a larger hike.
Emerging market stocks rose 0.5%, erasing losses from the last two sessions, boosted by Chinese shares .
Real estate developers in the world’s second-largest economy continued to gain on news that Beijing was planning to aim for a warchest of up to 300 billion yuan ($44 billion) to restore confidence in the ailing industry.
Elsewhere, South Africa’s rand rose for a fourth straight day following a central bank rate hike last week, gaining 0.7%. Figures from the central bank showed a composite business cycle indicator had fallen 0.7% in May.
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(Reporting by Anisha Sircar in Bengaluru; editing by Uttaresh.V)