The Polish zloty found itself on the brink of a significant weakening, yet managed to recover its losses. At the start of last week, the EUR/PLN exchange rate approached a key resistance level of 4.30 zloty per euro, but failed to break through it decisively. The main factor that helped was the weakening of the US dollar against major global currencies, including the euro.
On Monday around noon, one euro cost 4.28 zloty, while the dollar stood at 3.75 zloty. As noted by economists at Bank Pekao, the zloty stood at the edge of an abyss in recent days, but took a step back.
At the beginning of last week, EUR/PLN touched important resistance levels (4.30/EUR), but they were not breached. The weakening of the dollar against major currencies, including the euro, played a major role here. This episode showed, however, that the zloty remains sensitive to USD valuations and to expectations regarding the path of interest rates – the bank’s report stated.
Dollar weakness drives the market
According to experts, the dollar is weakening due to factors located in the United States – a high correlation with short-term US Treasury yields (and spreads relative to the rest of the G-7) seems to confirm this. Analysts pointed out that the recent weeks have brought another shift in markets – expectations of interest rate hikes in Poland have disappeared from the curve and been replaced by rate cuts.
The effect is stunning – the first half of the IRS curve is now below 4 percent, and all benchmarks of the domestic interest rate market are already close to levels seen before the outbreak of the war in the Gulf. Within a month, spreads relative to US and German 10-year bond yields narrowed by 35 and 60 basis points, respectively. No wonder the zloty is weaker. The removal of expectations for monetary tightening in Poland does not help it – the Bank Pekao analysts wrote.
What’s next for the Polish currency
Experts at ING believe that as long as the latest inflation projection and Thursday’s speech by NBP President Adam Glapiński do not fuel expectations for rate cuts still this year, EUR/PLN should trade below 4.30, likely in the 4.28-30 range. The domestic currency remains sensitive to changes in interest rate expectations, and the coming days will be crucial for determining its short-term trajectory.
Market participants are now closely watching the central bank’s communication. Any dovish signals could push the zloty back toward the 4.30 level, while a hawkish tone would support it in staying below that threshold. The situation on global markets, particularly the dollar’s performance and US economic data, will also play a significant role in shaping the zloty’s fate in the coming weeks.
Źródło: WNP.PL, Fot. Shutterstock/Jagoda_Mazurek
