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The escalation of military operations, along with increasingly severe sanctions and the decisions of some companies to leave the Russian market, have increased risk aversion and led to a severe discounting of most emerging market currencies. Understandably, the Russian ruble was the leader in devaluation, but the currencies of the Central and Eastern European region were also hit hard.
The zloty was weakening with each session, reaching a historic high (broken today) despite three days of currency interventions by the National Bank of Poland (from which Friday’s actions were coordinated with the Czech Central Bank). With that said, the EUR/PLN exchange rate last week reached around 4.93 (today it’s about three times higher).
See also: Exchange rates 07/03: Huge currency snapshots: Franc (CHF) most expensive in history, dollar (USD) and Euro (EUR) hit long-term highs – Zloty crash! Find out how much you’ll be paying today for the pound (GBP), yen (Japanese yen), and the ruble (ruble).
In the global currency market, the strategy of no risk (i.e. capital flight from riskier assets and money directed to so-called safe havens) favored the strengthening of the dollar (less) and the Swiss franc (more). The EUR/CHF exchange rate reached parity this morning (it was down 4% last week). It should be borne in mind that the beginning week will bring an intensification of current trends.
Our predictions for next week
The zloty remains under the dominant influence of the risk mitigation strategy, which is crucial to its overestimation. The start of the week is likely to bring a continuation of the current trends. This means that the EUR/PLN has reached new historical highs and broke the 5.0 psychological barrier, and above that the next resistance levels generated by technical analysis are spreading wider than before.
This – in the event of a further escalation of risks – will lead to sudden changes in the EUR/PLZ exchange rate. This week’s opportunity for the Polish currency is the meeting of the Monetary Policy Council (Tuesday) and the speech of the President of the National Bank of Poland (Wednesday). Market expectations are growing of a stronger possible reaction from the MPC on the interest rate side. The rationale would be to support the zloty.
chart of the week
The exchange rate of EUR / PLN, in the face of increasing risk aversion, today set the historical maximum at the level of 5.0. The zloty’s situation has become an increasing challenge for the Monetary Policy Council, which wants to curb inflation, and the Polish National Bank (which has intervened in the currency three times in the past week).
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