What is behind the decline in the Polish zloty?

The Polish zloty is not having an easy time. Over the last week, our native currency has weakened against the franc by 3,5%, the dollar by 3,3%, the pound by 2,9%, and in the case of the euro by 2,2%. Only yesterday, the EUR/PLN pair recorded the largest intraday increase since the unexpected interest rate cut in Poland in September 2023.

There are several factors behind the sales, but the most important one seems to be change in the economic and geopolitical background.

Solid ground for dollar increases?

The war in the Middle East, Russia's counteroffensive in Ukraine, Powell's hawkish comments combined with macro data suggesting the strength of the American economy and Lagarde's dovish comments from EBC create a potentially solid base for a technical rebound of the USD, which, let us remember, has performed relatively poorly recently. This was well illustrated by currency pairs with the Polish zloty, where we recorded levels around 3,90 on USD/PLN. Much of this is due to the media-driven narrative of Father inflow of funds to Poland from foreign investors to Poland, encouraged by funds from KPO. Equally important is the issue of interest rates themselves, which are actually hawkish compared to inflation (without taking into account forecasts of a sudden rebound in Q3).

Market in risk-off mode

However, the desire to allocate capital in EM economies may be running out. It is worth noting that with the recent declines in PLN valuation, the currencies of countries such as Mexico and Brazil have lost significantly. The market has entered (at least in the short term) "risk-off" mode, thus driving safe havens. Instruments with a slightly more speculative element may not show such an attractive risk premium as recently.

Antipodean currencies are currently performing particularly well on the broad market. Mainly the dollar and the euro experience greater declines. So we are seeing a partial erasure of the last wave of USD appreciation. The Polish zloty is rising this morning. We will currently pay PLN 4,0900 for the dollar, PLN 4,3476 for the euro, PLN 4,4895 for the franc, and PLN 5,0977 for the pound.

Source: Mateusz Czyżkowski, XTB