BUDAPEST, July 21 (Reuters) - Hungary's forint on Tuesday continued to recover from a two-month low hit last week, as it held on to optimism over the government's plans to boost the economy, with markets awaiting an interest rate cut by the country's central bank later in the day.

Oil prices lost more than 1% on Tuesday, helping the currencies of the oil-import-dependent continent, as markets weighed reports of mediation efforts between the U.S. and Iran against threats of a naval blockade of Saudi Arabia by Yemen's Houthis.

The forint added 0.6% to trade at 360.15 per euro, recovering from a more than two-month low of 364.95 hit on Friday after the U.S. and Iran resumed their hostilities earlier in the week.

Hungary's central bank was expected to trim the base rate on Tuesday by 25 basis points to 5.75%, in line with its guidance that a decline in inflation would give it room for more easing, a Reuters poll showed on Friday.

The National Bank of Hungary (NBH) lowered its base rate by a quarter point in June, after inflation fell below target as energy prices eased on market expectations of a Middle East peace deal.

"The rate cut has been widely anticipated and signalled, and should not have a noticeable impact on the forint," Commerzbank wrote in a note.

"The forint has weakened sharply from global risk aversion as the US-Iran war resumed, which is an independent development and may or may not reverse in the near-term."

In mid-June, the forint traded at 348.60, its strongest since 2021, as markets focused on a pro-European Union turn since Prime Minister Peter Magyar took power in May and secured the release of frozen EU funds that could boost the economy.

The forint is the best performer among its CEE peers in 2026 so far, adding 6.6% versus the euro since January.

On stock markets, Hungary's OTP Bank shares rose 3.3% by 0843 GMT, outperforming the wider market after the bank announced on Monday that it was buying Luminor Bank, the biggest acquisition in its history.

Budapest's blue-chip index was up by 2%.

Elsewhere, the Polish zloty firmed 0.1% to trade at 4.3271 per euro as investors in the CEE region focused on geopolitical factors, mainly the Iran war and oil prices, analysts said.

The Czech crown and the Romanian leu edged higher.

CEE MARKETS SNAPSHOT AT 1053

CET

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Prague 2604.1 2592.0 +0.47 -3.03%

8 900 %

Budape 144471 141600 +2.03 +30.12%

st .24 .83 %

Warsaw 7 5 %

Buchar 23 20 %

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