The zloty strengthened against the euro for the fifth week in a row. NFPs may increase dollar volatility

This is one of the best series for the Polish currency recently, when the zloty was regularly strengthening against the euro. Here we see the effect of the pre- and post-election assault on Polish assets, including shares of Polish companies that must be purchased for PLN. As long as the Polish market is underweight among institutional investors, the zloty may be supported by these inflows. When this element of the market purchase of Polish shares and bonds ends, the zloty will again be dependent on the core markets.

Currently, the EUR/PLN exchange rate has a chance to head towards the August minimum of PLN 4,40. Exceeding it could put an end to the entire downward trend and rally of the Polish currency. Then the next potential support may be around PLN 4,30.

It is important to remember that, in addition to local factors, the currencies of emerging economies may also be helped by a pullback in bond yields in global debt markets. At the moment, the interest rate on 10-year US bonds is no longer 5%, but has gone back to 4,70%. Moreover, the chances have increased that a further increase in debt interest rates will not occur due to the economic situation. If so, a pullback in yields to 4,2-4,0% may result in a rally in risky assets, including a continuation of strengthening EM currencies, including the Polish zloty.

Taking a broader look at the currency market, it should be noted that if it were not for the events in Japan, the entire dollar index would probably be at a lower level. The USD/JPY exchange rate rally close to October 2022 levels could recently lead to a broader strengthening of the USD also against other currencies. Just like last year, the return in many markets may depend on the dollar starting to weaken, and this largely depends on the intervention of the Bank of Japan. However, he is in no hurry to carry them out on a large scale for now, and the October 2022 peak has not yet been exceeded.

At the end of the week it will be crucial for the currency market NFP reading, i.e. data on changes in employment in the USA, including the unemployment rate. The worse this reading may be, the lower the yields may be, the weaker the dollar may be and vice versa. Publication exceptionally at 13:30 p.m., not at 14:30 p.m., due to the time change in Europe.