The downgrade of the US rating backfires on the zloty

Wednesday morning brings a continuation of yesterday's sell-off of the zloty to the basket of major currencies. The Polish currency loses as a result of the deterioration of the investment climate in global markets and the related increase in risk aversion, caused by the decision of the Fitch agency to downgrade the US credit rating.

The market reacts to the downgrade of the US rating

At 08:11, the euro gained 1,1 PLN to PLN 4,4550, after EUR/PLN briefly fell below PLN 4,40 on Monday and reached levels not seen since September 2020. The dollar is more expensive in the morning by 2,2 grosz to PLN 4,0548, the British pound by 1,6 grosz to PLN 5,1751, and the Swiss franc is more expensive by 1 grosz and you have to pay PLN 4,6345 for it.

Agency Fitch Ratings quite unexpectedly decided downgrade the U.S. credit rating from the highest level of AAA to AA+, which resulted in an increase in risk aversion in global markets. As the reason for the rating cut, the agency pointed to the expected deterioration of fiscal conditions in the US over the next three years and the growing debt of the world's largest economy.

Will the zloty remain weak?

The zloty, like many other currencies, is taking a backlash today after Fitch's decision, but its weakening started yesterday and was originally caused by weak data from the industrial sector in Europe, including a lower than expected "recessive" PMI index reading for Polish industry.

In the following days, the depreciation of the Polish currency against a basket of currencies may continue. There are many indications that the global markets have just entered a short period of economic downturn, which in the zloty coincided with the beginning of a stronger correction of its strong strengthening lasting since February. Strengthening, which brought the EUR/PLN exchange rate from PLN 4,80 to below PLN 4,40, and the USD/PLN exchange rate from PLN 4,50 to PLN 3,9350 in mid-July.

A correction on the currency market may push the euro to around PLN 4,50 and the dollar to PLN 4,15 even in the first half of August, but in the medium term it will not threaten the appreciation trend in which the native currency has remained for months.