Zloty slightly stronger, in the center of Fed's attention

After two days of significant appreciation, the zloty slightly eased its tone. Still gaining in value, but on a much smaller scale. The currency market's attention shifts from Ukraine to the Fed.

PLN is catching up on recent losses

On Wednesday morning the zloty continued to strengthen against the main currencies. However, on a much smaller scale than in recent days. And this despite the fact that the mood in the financial markets is clearly better today. This suggests that investors' attention is shifting from the topic of the war in Ukraine to the issue of the first interest rate hike since the end of 2018 by Fed.

At 10:45 am the dollar had to be paid PLN 4,2781, which is 1,5 groszy less than yesterday at the end of the day and over PLN 34 less than on March 7, when the dollar was the most expensive in history in relation to the Polish currency. The Swiss franc is cheaper today by PLN 1, the pound by 0,7 PLN and only the euro stabilizes at yesterday's close levels. 

USD / PLN daily chart. Source: Tickmill

The appreciation of the zloty observed this week is primarily the effect of a significant improvement in sentiment in the financial markets, which took place on the wave of rising expectations for a truce in Ukraine. Today, these hopes were additionally heated by the Russian minister Sergey Lavrovwho in one of the interviews said that "There is hope for an agreement in talks with Ukrainians". Only that this factor is largely discounted by the market. 

In the spotlight of jno more war and interest rates

Today, the attention of the currency market is slowly shifting from the topic of Russia's aggression towards Ukraine to the issue of US interest rates. Today's Fed meeting will be the first step in this direction. The Fed is expected to raise interest rates by 2018 basis points for the first time since December 25 and thus begin a long cycle of increases in the cost of money, which is intended to contain the highest inflation in the US in 40 years.

For all emerging market currencies, including the zloty, interest rate hikes by the Fed are an additional risk factor. A series of several hikes is already included in prices, but if today the Fed is strongly hawkish (eg Fed raises rates by 50bp instead of 25bp), the zloty may weaken. Of course, this relationship also works the other way around. The "dovish" Fed will translate into strengthening of the zloty.

Waiting for the evening results of the Fed meeting puts the macroeconomic data from the Polish economy released today into the background. At. At 14:00 the January and February data on core inflation in Poland will be released, as well as the January report on the balance of payments.