The HUF weakened sharply on Thursday and broke north of 284 in the evening hours as US stock markets plummeted. The forint has not been at such weak levels to the EUR since June 2009.

By Friday morning the HUF regained some strength and is now below 282.

The USD/HUF and CHF/HUF pairs, though put on an even more exciting show.

The forint breached 202 northbound against the Swiss franc late on Thursday, a 13-m low for the HUF. Against the dollar it briefly hit 226.50 yesterday, a level untouched since May 2009.

The past days’ events confirmed that CEE currencies are at the mercy of global investor sentiment and this is what is most likely to determine where the forint goes today. Foreign investors keep their eyes and ears on Greece, especially on a decision by Germany’s Parliament today on the bailout package to be granted for the troubled country.

Most Central and Eastern European currencies remain pressured, with the zloty and forint taking the hardest beating, Copenhagen-based Danske Bank said in a note on Friday.

"Even though we believe that both the Czech koruna and the Polish zloty are now trading at fundamentally undervalued levels, we believe that the short-term sentiment will remain negative on CEE currencies. This is also confirmed by our EMEA FX Scorecard which remains in negative territory for PLN, HUF, CZK and RON," it added.

In this respect, Danske reminded that the CEE FX weakened significantly in the months following the collapse of Lehman Brothers. "If the European sovereign debt crisis worsens it is probable that CEE currencies will remain pressured and might very well overshoot in a similar fashion as during early 2009."

Hungary’s forint kicked off 2009 at around 265 versus the EUR and as panic engulfed global markets it eased to above 315 by mid-March.

Danske pointed out that the Swiss franc is strengthening significantly against all CEE currencies.

"This is potentially a problem for financial stability in the region as many household and companies in Poland, Hungary and Romania have CHF-loans. Hence, further CHF-strength could add to the massive selling pressure in CEE currencies."

"All bets are temporarily off for the CE-3 currencies in the midst of the European debt crisis and stop/losses on the crosses have been triggered, creating sharp moves higher," Skandinaviska Enskilda Banken (SEB) said on Friday.

EUR/PLN is trading close to 4.18 now from yesterday's lows at 4.0655. EUR/CZK moved above 26.00 as a reaction to the surprise 25-basis-point rate cut by the CNB to 0.75% yesterday and in addition stops forced the cross towards 26.20 this morning.

"Market conditions are far to volatile to recommend short term directions and we will wait to see if further statements from the G7 leaders and for the US Non farm payroll this afternoon to see if confidence can return or accelerate the slipping markets," the SEB added."

Source: Portfolio Online Financial Journal