Hungarian Forint: Inflation surprise and HUF dynamics – ING

Hungarian inflation rebounded to 1.3% in August from 1.2% in July, but the reading remained below market expectations and the National Bank of Hungary's forecast. ING expects inflation to remain below the central bank's target for the rest of the year.

The benign inflation backdrop has increased focus on the NBH's policy direction. Markets are watching for a possible pause in rate cuts in September, alongside discussions around a lower inflation target ahead of potential euro adoption.

Recent market moves suggest traders are already positioning for a policy shift, with the Hungarian forint strengthening and the interest-rate curve flattening. ING expects euro-area spreads to tighten further, which could offer additional support to the HUF.

However, rising global energy prices remain a key risk. If gas and oil prices continue to climb, the forint's recent gains could be limited and EUR/HUF could move back above 364 after falling below that level.