On Tuesday, the zloty had its worst day since September 6, 2023

On Tuesday, the zloty had the worst day since the memorable September 6, 2023, i.e. since the depreciation of the Polish currency caused by the unexpected decision of the Monetary Policy Council to significantly reduce interest rates in Poland. This time, however, the weakening of the zloty is not caused by domestic factors, but most likely by foreign investors.

What are the reasons for the depreciation of the Polish zloty?

Yesterday, the zloty weakened rapidly against the main currencies. The EUR/PLN exchange rate, which was below PLN 4,25 last week, increased to PLN 4,3717. Yesterday, in the second half of the day, USD/PLN rates rose to PLN 4,1222 and CHF/PLN to PLN 4,5126.

On Tuesday, the currencies of countries such as Brazylia i Meksyk, which leads us to look for the reasons for the weakening of the zloty (real and peso) in the withdrawal of short-term foreign investors from these currencies or even speculative play on the weakening of emerging market currencies.

The attempt to play against the currencies of emerging markets is probably a result of the rising yields of US bonds, the recently observed deterioration of the investment climate on global markets and the strengthening of the dollar. The geopolitical situation in the Middle East may have some influence, but the influence of factors closely related to the situation of the Polish economy on such behavior was zero.

Currently, there are many arguments that the recently observed weakening of the zloty, including in relation to the dollar, is only corrective in nature and will be limited in time. Fundamental factors, such as the expected significant recovery in the Polish economy, relatively high interest rates in Poland and expected inflows of European funds, still support the strengthening of the Polish zloty in the medium and long term.

On the USD/PLN chart, the first important supply barrier is the wide zone of PLN 4,10-4,13. There, we should expect a possible downward movement of the dollar. The first confirmation of such a return will be a permanent return of USD/PLN quotations below PLN 4,06-4,07.

USD / PLN daily chart. Source: Tickmill

However, if the USD/PLN exchange rate breaks above PLN 4,10-4,13, the dollar may increase to PLN 4,20-4,2250. The chances of such a scenario coming true should now be estimated at around 25%. However, it seems unlikely that the USD/PLN exchange rate will permanently stay above PLN 4,20. This is certainly a less realistic scenario than the dollar returning below PLN 4.