Hungary‘s currency fell on Monday following reports that the European Union was prepared to sabotage the Hungarian economy if the former Soviet-occupied country blocked a €50 billion ($54.04 billion) financial aid deal for Ukraine.
The forint lost 0.3% against the euro (EUR/HUF) to HUF389.48 and was down 0.6% versus the dollar (USD/HUF) at HUF360.16.
Earlier in the day, Marc Chandler, head of FX at Bannockburn Global Forex, said: “The Hungarian forint is the weakest, losing almost 1%. “
“The EU is threatening retaliatory action if Prime Minister [Viktor] Orban continues to insist on blocking large amounts of aid to Ukraine,” he added.
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EU Denies Sabotage
The EU reportedly denied any plans to undermine Hungary’s economy if Orban were to block the financial aid payment.
Hungary’s minister for EU affairs, János Bóka, said such a move would constitute “blackmail.”
Reports of an EU “sabotage” plan originated in the Financial Times, which reported on Sunday that it had seen a document drawn up by EU officials outlining a strategy to “explicitly target Hungary’s economic weakness, imperil its currency and drive a collapse in investor confidence.”
This would be achieved by the EU cutting off all its funding to Budapest. The document added that without EU funding, “financial markets and European and international companies might be less interested to invest in Hungary.”
Orban is the only leader of a EU nation to retain close ties to the Russian President Vladimir Putin and the Kremlin since Russia launched an invasion of Ukraine nearly two years ago.
Hungary Sends New Proposal
Budapest sent a new proposal to Brussels, saying it would agree to use the EU budget for aid to Kyiv and the issuance of new government bonds to finance it.
Hungary’s forint was also being undermined by expectations of a highly-dovish outcome at Tuesday’s central bank meeting.
“Hungary’s central bank meets tomorrow and a 100 basis points cut is possible,” said Chandler.
He added: “The government wants to shift the target rate to bills, which are lower than the deposit rate and the central bank is resisting.”
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