Pre-Christmas correction on the Polish zloty. Euro exchange rate above 4,34

In recent days, the zloty has been correcting its previous incredible strengthening, which lasted from September 12 to December 13. During this time, the euro exchange rate fell by over 8,5%, which was an even greater wave of zloty strengthening than the one we observed between mid-February and the beginning of August. Then the EUR/PLN exchange rate dropped by 8,2%. The market has been talking for over a week that the end of the year may be a period of profit-taking by institutions betting on the strengthening of the zloty in the previous weeks. It's mainly about the market currency options, where the effect of these instruments on a decline in the EUR/PLN exchange rate was to be very significant.

From this perspective, we can now talk about a possible correction in the quotations towards 4,36 or towards 4,41, if the correction were to gain momentum. It should be remembered that during this special time of holidays and the end of the year for the markets, there may be little liquidity, which may favor possible larger movements of the exchange rate in the scenario of possible profits from the strengthening of the PLN before the end of the year.

Real EUR/PLN exchange rate unsustainable?

The above paragraph referred to the nominal exchange rate, but at the time of occurrence high inflation and its large fluctuations, you should also look at the real exchange rate. In this case, it can be estimated that the euro exchange rate is PLN 3,80. On the one hand, this is good news for people who want to take advantage of trips abroad, because their purchasing power may be higher than in previous years. This is also good news for importers. In turn, it is a very difficult situation for exporters, as not only is the economic situation in the EU, in Germany, not the best, but the exchange rate also causes lower revenues in PLN.

If inflation in Poland starts to rise again after the first quarter of 1, and by then it may even come close to the upper limit of the target NBP, then the zloty may no longer bear it. The real exchange rate may depreciate during the next small wave of inflation, and then levels of PLN 4,50-4,60 would be more optimal. However, this assumption will only take place at the end of the first quarter of 2024.