Foreign exchange market: the euro / zloty exchange rate has fallen to a minimum – “zloty” is the most profitable currency! See the comments and forecasts for the forex market
The zloty was rising last week against the major currencies and compared to the euro – except for a strong recovery in the recent heavy sell-off of the Russian ruble – it was the strongest currency in the emerging market basket. Temporarily, EUR/PLN prices fell to 4.65, the 3-week minimum, excluding the growing market conviction of a possible peace agreement between Ukraine and Russia, as well as the positive impact of domestic factors.
Supporting the value of the zloty, apart from previous reports about the possibility of accepting the national reconstruction plan by Brussels, a batch of macroeconomic data for February – better than expected – was building hope for a strong pace of economic growth throughout the year, even in the face of war. Only last weekend saw heavy selling in the zloty and other currencies in the region as investors prepared to take some profits and an unexpected increase in US-China tension.
In the world’s major currency pairs, the week ended with “risk taking”, which means pressure to increase the value of the euro and sell safe havens, namely the dollar and the Swiss franc. As a result, the EUR/USD and EUR/CHF exchange rates rose, which, however, were partially offset on Friday by the aforementioned increase in risk aversion just before the weekend. Once again, the Swiss Franc has been particularly sensitive to the change in sentiment, having risen sharply in the previous four days, only to decline dynamically at the end of the period under review.
See also: Currencies: things will happen! What will drive the exchange rates of the dollar, the euro and the Polish zloty?
Our forecast for the next week – EUR / PLN
In our opinion, the EUR/PLN exchange rate will remain sideways in the range of 4.65 – 4.7240 for the next few days, reflecting the mixed market sentiment around a possible peace agreement in Ukraine and the ongoing Russian military operations in that country.
While Monday has an opportunity to bring quotes closer to the bottom of the described channel (by nullifying the cut of the riskiest positions before the weekend), we believe that in order to continue taking risks from investors, specific information on the peace process should be provided. It is possible that they will appear (Ukrainian-Russian negotiations are underway today), but given the political nature of this factor, it is difficult to predict when this will happen.
Therefore, the zloty will remain in mood swings, although, as we have indicated, the volatility should not be too strong. Despite the fact that this week we will learn about the upcoming domestic macroeconomic data, we do not think that it can be significant from the point of view of valuation of the zloty. The influence of the external environment will dominate the EUR/PLN exchange rate.
See also: The Euro (EUR) fell – the panic wave of selling zlotys (PLN) stopped!
The past week was once again marked by increased volatility in domestic debt. However, the defining feature of the past weeks was the fact that last week’s changes were the Treasuries sell-off. As a result, after a few days of massive gains in recent days, profitability is down – especially in the long run.
This was partly the effect – similar to the local currency market – of profit taking. However, expectations for an increase in interest rates in Poland also subsided, which further contributed to lower profitability (as measured by FRA contracts, investors canceled a 25 basis point increase in the reference rate). Moves in domestic debt have not matched the behavior of core bonds, with yields rising on moderate positive sentiment for most of the past week and recent hawkish surprises in the results of the ECB and US Federal Reserve meetings (in both cases the source of surprise was a bolder approach to the pace of easing asset purchases). As a result, the profitability of the bond increased by 10 basis points to 0.37% and the US 10-year bonds reached the level of 2.15%, so it increased by up to 16 basis points compared to the last two.
See also: The bond market, or a story about declining economic growth and monetary deflation.
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