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On Thursday, the EUR/PLN exchange rate fell near 4.66 and the USD/PLN exchange rate strengthened to 4.48 amid the EUR/USD rate fell below 1.04.
The dollar hit a new 20-year high against a basket of major currencies (the dollar index reached 104.8 points) on growing market concerns that the Fed’s increasingly restrictive monetary policy will negatively affect the pace of global economic growth. This prompts investors to reduce their positions in risky assets and flee to safe haven currencies. This is evidenced by the behavior of the Japanese yen on Thursday, which was the strongest of the major currencies, and the continued selling in the stock, commodity and cryptocurrency markets.
Under conditions of increased risk aversion, support on the EUR/USD pair was broken near 1.05, taking the rate to 5-year lows. For further price behavior, it will be important to stay above the key support around the 1.0350 level, i.e. the 2017 minimum. The observed rise in the value of the dollar directly affects the exchange rate of the US dollar / Polish zloty, and therefore in the event of an increase in the rise of the US currency, the A breakout of 4.50 is inevitable.
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In our region, the Czech koruna fully recovered its losses against the euro and the zloty after the intervention of the Chinese Central Bank in the foreign exchange market. On the other hand, the Hungarian forint came under pressure after MNB Vice President Barnabas Viraj announced that the bank will continue the monetary policy tightening cycle, but the period of sharp interest rate increases is over. The appointment of A. Glapiński to the second term of the NBP Chairman means the continuation of the approved restrictive monetary policy, which should favor the zloty in relation to regional currencies and help keep the EUR / PLN exchange rate below 4.70, despite pressure from growing risk aversion and the strengthening of the dollar.
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In the domestic interest rate market on Thursday, a positive sign was the high selling of bonds at the turnaround auction. MF issued bonds OK0724, PS0527, WZ1127, WS0428, WZ1131 and DS0432 for PLN 5.2 billion. It is worth noting that the last time the issue value at the exchange auction exceeded PLN 5 billion in July 2021, and in the first quarter of 2022 it reached a maximum of PLN 4.1 billion. Moreover, most of the demand this time focused on bonds with a fixed coupon and longer maturities (their share of sales was 65%). This indicates that market participants expect towards the end of the price-raising cycle and at the same time build long positions against a possible decrease in profitability in the second half of 2022. Given the latest data and the structure of securities sales, foreign investors are also very active, which It would boost the domestic debt market in the medium term.
Thursday’s domestic turnaround auction result, combined with a positive change in mood in the core markets increases the likelihood of a scenario that assumes at least a short-term recovery in the domestic debt market. With the current high yields, we see a clear increase in demand for Polish securities. This situation should be reinforced by the positive momentum in the global market, since in recent days the attention of investors has focused mainly on the risks of a slowdown in the global economy. This can be seen in the sharp drop in stock prices on the stock exchanges or the increase in demand for safe assets. In this context, Friday’s release of final inflation data for April will not have a significant impact on trading. As part of the indicated recovery, yields on 5-year bonds may fall below 7.0% in the coming days, and yields on 10-year bonds around 6.3%.
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