The scale and dynamics of the depreciation of the Polish zloty, which took place in the last days and accelerated on Monday, seems to be comparable only with what happened in March when the lockdown appeared. This time more factors may overlap, including the worst for the markets, i.e. the political factor.
On Tuesday morning, the euro rose to PLN 4.59 and thus the EUR/PLN exchange rate was at its highest level since early April. We are close to the zloty to euro being the weakest since the second half of March, and when the 4.63 level was exceeded, then the EUR/PLN exchange rate could be the highest since 2009. In September alone, the euro went up by over 4%. Why?
The first factor is the possible increase in COVID-19 in Europe, including Central and Eastern Europe during the autumn-winter season, which may involve the introduction of further restrictions, which in turn may adversely affect business activity and thus economic recovery.
The second factor seems to be the policy, which may be much more difficult to solve. Poland, which has had problems with the rule of law of the EU for a long time, may be punished for this by lack of access to a part of the aid package developed by the EU worth 750 billion euros. Yesterday in the afternoon, news services announced that to pass a penalty for non-compliance with the rule of law for individual countries, the consent of 15 out of 27 EU countries will be needed, and not, as previously thought in Poland, that the decision must be unanimous.
In this situation, Poland or Hungary, which are the countries with the greatest reservations, may be cut off from EU aid, unless they follow the recommendations. In principle, the situation of the zloty, but also of the forint, may now depend on this. Investors quite clearly show how little chance Poland has for the moment to fight to change this mechanism and the conditionality of granting money from the European budget.
It seems that the Polish zloty will also not be defended by the National Bank of Poland, which recently complained that the zloty's exchange rate has not adapted to the new reality. In other words, the zloty was, according to the NBP, too strong. Its weakening is therefore in the hands of the Monetary Policy Council, hence it seems that there will be no intervention on the currency market.
The possible significant levels for EUR/PLN are currently 4.63, for USD/PLN 4.00, for CHF/PLN 4.38, and for GBP/PLN 5.15 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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