Emerging Market Currencies in the EU-US Trade Crosshairs: Strategic Entry Points in the Hungarian Forint and Swedish Crown

The EU-US trade negotiations of 2025 have become a seismic force in global markets, recalibrating risk appetite and creating asymmetric opportunities in emerging market currencies. While the initial wave of U.S. reciprocal tariffs sparked a flight to safety, the subsequent easing of trade tensions has unveiled pockets of value in EM assets—particularly in the Hungarian forint (HUF) and Swedish crown (SEK). These two currencies, though shaped by distinct economic fundamentals, now stand at a crossroads where structural vulnerabilities and policy shifts could redefine their trajectories.

The HUF: A Currency of Controversy and Contradictions

Hungary's forint has long been a barometer of political risk. The country's economic landscape in 2025 is a patchwork of contradictions: a government that has alienated foreign investors through preferential treatment of domestic ownership, yet remains a critical hub for U.S. manufacturing and technology firms. The cancellation of the U.S.-Hungary bilateral tax treaty in 2023, coupled with retroactive tax policies and a weakened central bank, has eroded investor confidence. However, the forint's sharp depreciation in early 2025—driven by inflation peaking at 17.5% and a fiscal deficit of 4.5% of GDP—has created a paradox: high real yields in local markets and a currency undervalued relative to its peers.

Hungary's strategic position as a third-largest recipient of U.S. FDI in Europe means its currency is inextricably linked to transatlantic trade dynamics. The EU-US trade deal, if structured to include provisions for regulatory alignment and investor protections, could catalyze a rebound in the HUF. However, this hinges on the Hungarian government addressing its governance flaws—corruption, rule-of-law concerns, and fiscal profligacy. For now, the forint remains a high-risk, high-reward asset. Investors with a contrarian outlook might consider dollar-cost averaging into HUF-denominated bonds or FX options, but only with a clear exit strategy tied to policy reforms.

The SEK: A Proxy for Geopolitical Uncertainty

Sweden's krona (SEK) tells a different story. As an export-dependent economy (exports account for ~55% of GDP), Sweden is acutely sensitive to U.S. tariffs on autos, machinery, and pharmaceuticals. The Riksbank's recent rate cuts—spurred by core inflation projections falling below 2% in 2026—reflect a central bank navigating a fragile economic outlook. Yet Sweden's robust fiscal position (public debt at 35% of GDP) and proactive trade diversification efforts (e.g., pushing for EU-India and EU-MERCOSUR agreements) position the SEK as a tactical play in a post-U.S.-centric trade world.

The SEK's underperformance in 2025—partly due to U.S. tariff threats and a weaker dollar—has created a mispricing. With Sweden's government prioritizing household support and job creation in its 2025 budget, the krona could rebound if trade tensions abate and the Riksbank continues to cut rates. Investors might consider long SEK positions against the dollar or euro, particularly if the EU-US deal reduces market volatility.

Strategic Entry Points: A Framework for Action

For investors, the key lies in balancing macroeconomic risks with structural opportunities:

1. HUF:
2. Entry Strategy: Buy HUF through structured notes or options if the Hungarian government signals reforms (e.g., central bank independence, tax transparency).
3. Risks: Escalating trade tensions or political instability could trigger another sell-off.

4. Stop-Loss: 390 HUF/USD (current level of ~370).

5. SEK:

6. Entry Strategy: Allocate to SEK via currency ETFs or cross-currency swaps, capitalizing on its undervaluation against the dollar.
7. Catalysts: A resolution to the EU-US trade dispute and the success of Sweden's new trade agreements.

8. Stop-Loss: 10.5 SEK/USD (current level of ~9.8).

9. Diversification: Pair these positions with hedging in EM hard-currency bonds (e.g., Brazil, India) to offset regional risks.

Conclusion: Navigating the Crosshairs

The EU-US trade deal is not a silver bullet but a catalyst for re-evaluating EM currency allocations. The HUF and SEK exemplify how domestic policy and external trade dynamics intersect to create asymmetric opportunities. For the HUF, the path to recovery depends on political will; for the SEK, it hinges on geopolitical stability. Investors who can tolerate short-term volatility and align their portfolios with these divergent narratives may uncover compelling value in 2025.