PLN sale. When might it end and what might be behind it?

This week, the Polish zloty has been under pressure because the dollar and euro rates have increased significantly in relation to PLN. The scale of the increase in the strengthening of foreign currencies is the largest since September 2023, when The Monetary Policy Council decided to cut interest rates by 75 basis points, which was then surprising. This week, by Thursday morning, the USDPLN rate increased by 08% by 00:1,63 a.m., and the euro rate increased by 1,21% in relation to the Polish zloty. This is the fourth week in a row when the euro is gaining against the zloty, but this week is a much greater dynamics of the weakening of the Polish currency. In the morning you should pay PLN 4,40 for a euro and PLN 4,04 for a dollar. What could be behind the sale of the Polish currency this week?

Why has the zloty weakened so much this week?

Since the beginning of the week, there has been an attempt to find the reasons for the weakening of the Polish currency, often the subject of political reasons in the country or the so far denied information that NBP would start selling Covid bonds. Nevertheless, it seems that the reasons can be found more in international events. Just look at how significantly the Mexican peso has depreciated this week, which is probably in the same basket as the Polish zloty when it comes to emerging economies. The peso has suffered its largest depreciation since the beginning of October 2023. So why may EM assets be widely sold off? Here we must pay attention to the yields of American bonds.

US bond yields, stronger dollar, weaker EM

Emerging market currencies and, for example, EM stock markets were doing very well when bond yields in the US were falling. On December 28, the yield on 10-year US bonds was at 3,8% and has been rising steadily since then until yesterday. Yesterday, the level of 4,11% was reached, which is the highest since mid-December 2023. Looking at the correlation between the currencies of emerging markets and US bond yields, it is easy to miss this connection, which probably best explains the weakness of the zloty, but also of the stock exchanges.

What's next for the PLN exchange rate?

Seeing the connections with US bond yields, the future fate of the PLN should depend on them. Here, in turn, the chances are growing that a further increase in profitability in the US may be less and less likely. Therefore, the strengthening of the USD seems to be limited. Therefore, there are increasing chances that the correction in the PLN quotations will end and further depreciation of the PLN may be very limited. Therefore, in the near future the dollar may again cost less than PLN 4 and the euro less than PLN 4,35.