Analysts lost faith in the zloty. Currency forecast for 2022

Analysts lost faith in the zloty.  Currency forecast for 2022
Analysts lost faith in the zloty.  Currency forecast for 2022
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A year ago, it was thought that it couldn’t be worse with the zloty. They were wrong. The Polish currency has set many years of weakness records, disappointing almost all market analysts. The latter have lost faith in any significant strengthening of the zloty in the last 12 months.

It was another bad year for the Polish zloty. We started it with the euro exchange rate at PLN 4.55 after we experienced bizarre interventions of the National Bank of Poland on New Year’s Eve, which wanted to artificially weaken the zloty on the last day of the year in order to pay more money to the state budget. Also in winter, representatives of the NBP and the MPC did a lot to make the zloty weaker than it would result from market conditions.

Despite the sabotage on the part of the NBP, the euro rate in February managed to drop to around PLN 4.50. However, the March lockdowns scared the market, which amounted to EUR quotations to PLN 4.67 and breaking the previous “covid” peaks. The loosening of the coronavirus restrictions and the post-Covid economic boom at the turn of May and June contributed to the reduction of the euro exchange rate to PLN 4.45.

And that was this year’s minimum. The lack of reaction of the central bank to the rapidly growing inflation in the following months systematically weakened the Polish currency. The euro exchange rate first reached the level of PLN 4.60 and exceeded it in early autumn. Only this prompted the Monetary Policy Council to abandon the harmful policy of zero interest rates. However, the hikes were far too weak and definitely too late.

Even if it were not for them, today we would probably write about the euro for PLN 5. The market, however, managed to catch up with the level of PLN 4.72. At the end of November, the zloty was the weakest against the euro since March 2009 and the weakest in history against the Swiss franc. The zloty index measuring the strength of the Polish currency against the euro, dollar, franc and pound reached the lowest value in history. In the last 12 months this indicator decreased by over 1% and it was is the fourth year with a negative ending. Over the last five years, the zloty recorded only one year in the black. After 2007, there were 11 years of depreciation of the Polish currency for three years of growth.

A year ago we wrote that “even the most pessimists did not think that the Polish currency would weaken so much. Now, the market consensus assumes that the zloty will remain weak also in 2021 ”. Nevertheless, the then forecasts turned out to be much more optimistic than reality. At the end of December 2020, the market consensus assumed that by the end of 2021 the euro exchange rate would drop to PLN 4.36. In fact, we end the year at around PLN 4.60. A year ago, only Commerzbank analysts predicted such a development. All other forecasts for the zloty were more optimistic and generally assumed the end of 2021 in the range of PLN 4.3-4.4.

The dollar was to cost PLN 3.54, while on New Year’s Eve it was valued at over PLN 4.05. The Swiss franc exchange rate was supposed to drop below PLN 4, and instead it exceeded PLN 4.50 at the end of November. The British pound was to be traded below PLN 5 throughout the year. In fact, only in January it temporarily fell below this barrier, to end December close to PLN 5.50. I am not writing this to ridicule the forecasters, but to show how much disappointment the year 2021 was for zloty holders.

Over the previous months we have informed many times that the market consensus for the euro exchange rate is moving up. Even in August, most forecasts assumed that we would end the year 2022 with euro not cheaper than PLN 4.33. In September it was PLN 4.39, in October it was PLN 4.45, and after November it was already PLN 4.55. The latter level also sets the median of the forecasts at the end of December. It can be seen how harmful for the zloty was the delay in the MPC’s reaction to unacceptably high inflation and the dispute between the Polish government and the European Commission, as a result of which Poland may lose billions of euros from the EU Reconstruction Fund.

Median of the forecasts at the end of the period
Q1 22 Q2 22 Q3 22 IV quarter 22 2023
EUR PLN 4.60 4.58 PLN 4.56 PLN PLN 4.55 4.52 PLN
USD PLN 4.10 PLN 4.06 PLN 4.01 PLN 3.96 PLN 3.89
GBP * PLN 5.49 PLN 5.48 PLN 5.45 PLN 5.43 PLN 5.45
CHF * PLN 4.34 PLN 4.28 PLN 4.22 PLN 4.17 PLN 4.11
Source: Bloomberg. As of December 30, 2021 * own calculations

Forecasts for the euro exchange rate at the end of 2022 range from PLN 4.30 to PLN 4.95. An optimist can therefore say that none of the market experts is assuming that the level of PLN 5 per euro will not be exceeded, which in the current conditions may be considered a “success”. The fact is, however, that almost no one expects the zloty to return to its pre-vid form, ie the euro exchange rate below PLN 4.40. 15 out of 24 current forecasts from the Bloomberg database assume that the euro will remain in the range of PLN 4.40-4.60. Only five forecasters are betting on further zloty weakening, i.e. an increase in the euro exchange rate above PLN 4.61 at the end of 2022.

Unfortunately, this group includes analysts from Commerzbank, who last year were the only ones who correctly predicted the euro at PLN 4.60 at the end of December ’21. Now they predict an increase in the euro exchange rate to PLN 4.75 at the end of 2022. Experts from Wells Fargo (PLN 4.85) and JP Morgan Chase (PLN 4.95) are even more pessimistic. Even if these forecasts do not come true (for which we keep our fingers crossed), it shows how strong the resignation is in relation to the next year’s outlook for our currency.

Ah, that dollar for less than PLN 4

A year ago, the vast majority of analysts expected the US dollar to weaken against the euro. The market consensus assumed an increase in the EUR / USD rate from 1.21 to 1.24 dollars for one euro. The lowest forecast for this pair was then… 1.14. Meanwhile, we end the year 2021 with the euro valued at approx. 1.1324. So it is safe to say that this year’s dollar strength surprised probably all market analysts.

It was from here that all these forecasts about the dollar for PLN 3.60 came from. In fact, the dollar “rose” to PLN 4.20, although in the middle of the year it was PLN 3.65. As the dollar rose, the forecasts for the euro-dollar pair were revised downwards, but they still assumed that the US currency would start to weaken in the coming quarters. And this has been going on for over half a year. Therefore, I would be cautious about the prevailing market expectations that 2022 will bring the dollar back for less than PLN 4. This cannot be ruled out, but in recent months such forecasts have turned out to be simply wrong.

Even more striking was the contrast between forecasts and reality in the case of the Swiss franc. A year ago, most analysts expected that the franc would slightly weaken against the euro, and the EUR / CHF rate would rise from 1.09 to 1.10. These expectations materialized in February, but then the Helvetic currency only grew stronger, ending the year at just over EUR 1.03 for the franc. In this way CHF against the euro is the strongest since May 2015. As a result, we pay over PLN 4.40 for the Swiss franc on the Polish market, although a year ago we were forecasting the Swiss franc for less than PLN 4.

Finally, as always, I would like to remind you that in this article we talked about the median of analysts’ forecasts. The predictions of even the best experts may miss reality, which has happened quite often in the past. It should also be remembered that exchange rates can be very dynamic and during a quarter they may significantly deviate from the levels forecasted at its end.


About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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