The euro (EUR / PLN) exchange rate soared, the dollar (USD / PLN) rose sharply! Check why the Polish zloty has recently been close to the bottom. You must see the currency forecast!

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Since the beginning of November, we have been observing a marked weakening of domestic financial assets – both the Warsaw Stock Exchange, the Polish zloty and Treasury bonds have recorded a decline in prices. In our opinion, this is due to the overlapping of several negative factors, such as the outflow of foreign capital from Central and Eastern European markets due to geopolitical risk, rising inflation and concerns about the more hawkish policy of the US Fed.

The uncertainty is also increased by the lack of clear communication from the NBP regarding the path of interest rate increases

As a consequence, we expect high volatility of quotations to continue in the coming weeks, sustaining for the moment our moderately positive outlook on Polish equities (+1) and negative on duration of Polish government bonds (-2). By the end of the year zloty quotation may be under pressure however, we expect the negative factors to reverse in 2022 and, as a result, to gradually strengthen the rate.

The euro (EUR / PLN) exchange rate soared, the dollar (USD / PLN) rose sharply!  Check why the Polish zloty has recently been close to the bottom.  You must see the currency forecast!  - 1

While the stock markets of developed nations were breaking new all-time highs in early November,

The WIG index has already dropped over 6% from its maximum. At the same time, the EUR / PLN exchange rate after a short correction to 4.60 returned to this year’s highs at 4.68, and USD / PLN after breaking above the 4.0 level arrived above 4.10. On the other hand, the yields on 10-year domestic treasury bonds below 3.0% after short consolidation broke this level, approaching 3.20% in the middle of the month.

The euro (EUR / PLN) exchange rate soared, the dollar (USD / PLN) rose sharply!  Check why the Polish zloty has recently been close to the bottom.  You must see the currency forecast!  - 2

The first reason for the moves described above is the acceleration of the trend of capital inflow to the US dollar observed in November, and thus an outflow from developing markets, which loses not only the zloty, but also, inter alia, Hungarian forint or Turkish lira. This is related to the valuation by investors of a faster than previously forecasted interest rate hike by the Fed.

Currently, the quotations of interest rate futures imply a 65% probability of an increase in June next year, while at the end of September the above probability did not exceed 20%.

The rise in expectations for more hawkish Fed policy is a consequence of another surprise with high inflation in the United States – the CPI index rose in October by 6.2% YoY against the expected 5.8% and the previous result of 5.4% YoY. As a result, the EUR / USD exchange rate fell close to 1.13 compared to ca. 1.16 observed during October (so far we expected a slower decline of this currency pair, ie 1.15 by the end of the year and to 1.12 in Q4’22).

The euro (EUR / PLN) exchange rate soared, the dollar (USD / PLN) rose sharply!  Check why the Polish zloty has recently been close to the bottom.  You must see the currency forecast!  - 3

The second negative factor that weighs down the zloty the most,

so far there is dovish rhetoric of the MPC and no precise policy regarding the path of interest rate tightening in Poland. Despite the commencement of the cycle of interest rate increases and positive surprises (i.e. larger increases than expected by the market), the NBP and President Glapiński did not clearly define possible further steps in monetary policy.

Macroeconomic environment The previously identified shocks (supply shock, energy price shock, food shock) work and we will observe their effects for many months to come. While there are already the first indications of relieving supply problems (the Baltic Dry index is falling on the other hand. Read

The euro will fall like a stone in water?  What about the dollar?  Don't miss the latest forecast for currencies [EUR/PLN, EUR/USD, EUR/CHF, CHF/PLN, USD/PLN]

Currently, the market uses the interest rate futures (FRA) to price increases in the reference rate to almost 3.5% in the horizon of 12 months. This is even above the current expectations of BNP Paribas economists (3.0%). Therefore, a possible lower scale or a later interest rate hike by the MPC is a risk towards further weakening of the zloty.

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At the same time, the above expectations, together with further surprises in the domestic inflation data (+ 6.8% y / y in October against 6.4% expectations and 5.9% in September) and a possible further acceleration of dynamics within the range of + 9% in the horizon In the first quarter of next year, they translate into a continuation of the downward trend in treasury bonds (and thus an increase in their yields).

The euro (EUR / PLN) exchange rate soared, the dollar (USD / PLN) rose sharply!  Check why the Polish zloty has recently been close to the bottom.  You must see the currency forecast!  - 4

Regarding the political risk the price of domestic assets is influenced by the ongoing conflict between the government and the European Commission, among others on the reform of the judiciary and the approval of the new EU budget. Admittedly, this is not a new topic for investors, but in combination with media reports about the situation on the Polish-Belarusian border and concerns about an escalation of the conflict between Russia and Ukraine, it may temporarily weigh on investors’ sentiment.


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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