Disastrous data from the Polish industry weighs heavily on the zloty

Today, the Polish zloty is weakening in relation to major currencies, such as the euro or the dollar. The reasons for this state of affairs can be found in industry data, which worsened the sentiment around the Polish currency. Data from the Central Statistical Office indicated that new orders in Polish industry fell in March by -22% year-on-year. In March it was a decline of -2,7%. Similarly, we can also observe weak data in the monthly dynamics, which today showed a -1% decline compared to a -2,7% decline from February to March. Also the opening week, Monday the reading of industrial production in Poland was very poor. The data then indicated a -6% year-on-year decline compared to the expected -2%. As a result, the data add more arguments for a weaker Polish currency.

It is also difficult to expect that the continuing structural weakness of German industry and the broader European economy will not eventually be reflected in the economic situation in Poland. The weaker industrial situation in Poland is complemented by the expected slight increases in electricity prices in summer, because the government decided to only partially, very mildly unfreeze energy prices. As a result, inflation at the end of the year will probably fluctuate around 4%, giving the Monetary Policy Council an argument for at least one reduction. Of course, the greatest uncertainty comes from the still very high real wage growth, but recent data suggest that the surpluses are used to build up savings, after consumers in 2020-2022 became convinced that inflation could return at any time.

Downward pressure on the Eurodollar

Meanwhile, the publication of preliminary Ifo indexes from Germany signals a slight improvement in the assessment of the current situation, expectations and business climate. We cannot say the same about Italy, where consumer sentiment today strongly disappointed expectations. Further downward pressure on the Eurodollar may (finally) also begin to weigh on the zloty, which until recently resisted devaluation despite the weakness of the euro. We have been observing pressure for some time in most emerging market currencies, and the premium for PLN seems to be slowly disappearing.

However, recent macro data from Poland suggest that the Monetary Policy Council will not have as strong arguments as expected to keep rates unchanged, although the biggest dovish surprise still comes from energy prices, where, although we still do not know the changes in the level of transmission fees, worst-case scenarios leading to over 7% CPI in December 2024 will probably not come true.

Yesterday's preliminary S&P PMI data for April from the USA were weaker than expected, providing arguments for profit-taking on the dollar index and a rally on Wall Street, but today we are observing declines in the Eurodollar and a rebound in the USD. It seems that the US dollar, although it will probably struggle with mixed readings, may maintain its advantage over the basket of other currencies, against uncertain effects of monetary tightening in the euro area, weaker consumers in Great Britain and the dovish policy of the Bank of Japan, which is still perceived by the markets. It is hard to believe that the historically 'expensive' zloty would be able to permanently and completely become resistant to this state of affairs.

Today we pay 4,04 for the dollar, 4,31 for the euro, 5,02 for the pound sterling and 4,42 for the Swiss franc.

Source: XTB