The Polish zloty has been systematically depreciating since the beginning of July this year. Since then, the PLN lost over 5 percent to the dollar, almost 4 percent to the euro.
Lower economic growth, the threat of a global economic slowdown along with a recession in Germany and a possible recession in the United States, as well as an outflow of capital from the Warsaw Stock Exchange, which could have been triggered by a revision of the MSCI Emerging Markets index, all this could accumulate and affect on the weakness of the zloty. One positive information is that the MSCI EM revision will take place at the closing of the session on August 26, so this factor will cease to affect PLN.
USD/PLN daily chart. Conotoxia trading platform
The USD/PLN exchange rate set a high today (August 22). This is another highest level for over two years, and more precisely since April 2017. The zloty is weakening against the dollar in a fairly systematic way, which can be described as a trend channel. As long as its lower limit is not broken, it will be hard to talk about a change in the observed trend. Another key level is around PLN 3.90, where there was local resistance and now local support is located.
The zloty is also not supported by the approach of the Monetary Policy Council, which is on a summer break and will meet again in September. Meanwhile, on Thursday we got the minutes of the MPC meeting in July. As it turned out, already at that time a motion for an increase in interest rates by 25 basis points was placed. MPC members Eugeniusz Gatnar and Kamil Zubelewicz backed a motion to raise the benchmark by a quarter point. However, it was rejected by other MPC members, including Adam Glapiński.
The majority of the Council members expressed the opinion that considering current information, it was also likely that interest rates would stabilize in the coming quarters. They emphasized that the continued heightened uncertainty regarding the scale and persistence of the weakening of the global economic downturn, as well as its impact on the domestic economic climate, supports the interest rate stabilization.
Paradoxically, if interest rates are not cut in Poland, this should be good news for the zloty, because until today market estimated at 40% the chance to cut interest rates by a 25pp. This could put additional pressure to sell PLN.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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