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Is the zloty as strong as in 2008?

Is the zloty as strong as in 2008?

created Forex Club20 May 2024

Almost everything seems to favor the zloty - records on Wall Street, the awakening of emerging markets, the weakening dollar, the attitude of the Monetary Policy Council. Although there are no significant threats visible at the moment, the Polish currency is becoming more and more overvalued.

Records on the gold and copper market

We can certainly talk about a period of records on financial markets. Last week, new records were recorded on Wall Street in response to slightly better inflation data from the US, as well the emergence of a new model from OpenAI, which reignited the artificial intelligence boom.

Today, at the opening in Europe, we have records on the metals markets - gold and copper, but strong increases are recorded across the entire range, including: prices of silver, nickel, zinc. These are quite mysterious increases, partly stimulated by information that The Chinese government forces state-owned companies to make "intervention purchases of real estate". Nevertheless, the scale of the increases is very large and does not necessarily correspond to the incoming data on business activity. In any case, such a trend generally helps emerging markets, and this helps strengthen the zloty.

Our currency is additionally supported by the attitude of the Monetary Policy Council, which, despite recent favorable inflation data, signals a lack of readiness to reduce interest rates this year. At the same time, we already know almost certainly that the ECB will cut interest rates in June interest rates. These trends are so favorable that The Polish market does not react at all to the disturbing news from Ukraine and it can be assessed that the "frontline country" risk premium basically does not exist today.

Is the zloty as strong as in 2008?

As a result, the EUR/PLN exchange rate is the lowest since January 2020, the GBP/PLN exchange rate is the lowest since December 2022, and the exchange rate of the so hated CHF/PLN is the lowest since February 2022. Although USD/PLN is still "holding on", we are also testing barrier 3,90 .4,25. It might seem that the exchange rate of 4 is not particularly low. On the eve of the Eurocrisis it was well below 2008, and the minimum from the 3,20 summer holidays (i.e. the eve of the global financial crisis) was only 2008. However, the exchange rate cannot be viewed only nominally. If we take into account the difference in inflation since then, the adjusted exchange rate today is similar to that in August XNUMX! Of course, this is again a simplification. Inflation in Poland is largely inflation in services, where prices are also rising due to the growing wealth of society.. The actual fundamental exchange rate is impossible to determine, but it can be argued that the zloty is already noticeably overvalued.

However, as can be concluded from the fact that extremes in the strength of the zloty were usually recorded before larger external shocks, a catalyst on global markets is needed to change the current state of affairs. This week, they will be guided by NVIDIA's quarterly results, which will be announced on Wednesday after the US session. Also on Wednesday evening we will learn the minutes of the last Fed meeting. On Thursday, preliminary PMI indicators for May will be published. At 9:40 a.m. on Monday, the euro costs PLN 4,26, the dollar PLN 3,91, the franc PLN 4,31, and the pound PLN 4,97.

Source: Dr. Przemysław Kwiecień CFA, XTB

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