A month or so ago, Hungary told the IMF to take their austerity and shove it, but they appear to be softening that line as the current IMF lending program draws to a close.

The IMF says it will engage with Hungary with a view toward bridging remaining differences, according to a Reuters headline. The news is modestly EUR supportive as Hungarian funding problems would weigh on Euro zone banks…

WSJ Blog: The Source

• GDP seen falling 0.4% this year, growing 0.6% next year, rising 1.7% in 2012
• Deficit to fall to 7% of GDP next year, 1% above target
• Spain says IMF forecast too pessimistic
• IMF says banking reform needs to be accelerated

Pretty downbeat by IMF statndards as the genrerally try not to trod on too many toes…

EUR/USD is firm , however, at 1.3065.

It’s all about position squaring at this point. Most will wait until next week for fresh spec activity.

• China worried about long-term impact of budget cuts in west will hurt growth
• More cautious about ending fiscal stimulus due to Europe woes
• China thinks yuan has never been closer to equilibrium level

Still 40% under-valued, but never been closer to equilibrium! Kinda like saying I’ve never been closer to being 7-feet tall…

EUR/USD is near the upper end of the days range, underpinned by solid risk appetite despite stubbornly high jobless claims. Traders say yesterday’s pullback in US equities could have been much worse and are taking comfort in the mild dip.

• New currency regime is appropriate
• Currency account surplus will rise in next 5 years, not consistent with balanced economy
• China disagrees with IMF view on current account trajectory (over 8% of GDP in 5 years)
• Consumption growth needed to balance Chinese economy
• Recent data suggest increase in consumption

• FX rate is roughly in line with fundamentals
• sovereign risk likely to slow recovery in near-term
• heightened downside risk to euro zone growth
• Could see sharp weakening in growth in H2 of 2010 if confidence does not recover
• ECB can keep monetary policy very supportive

Latest from AEP at The Telegraph.

• Expects Hungary government to reach an agreement with international lenders in the autumn

• Hungary will have budget deficit figure of below 3%/GDP next year
• We will negotiate the size of bank levy for 2011 and 2012
• Expects lenders to return for talks in September

Greece is making progress toward putting its budget on a sustainable path and the economy is slowing in-line with the funds expectations. Hospital and social security spending remain risk areas for the government, the IMF says.

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