The euro/zloty exchange rate will compete head to head?! Happening in EURPLN quotes

The decline in €/PLN will accelerate as EUR/USD stabilizes

We expect the EUR/PLZ exchange rate to reach 4.50 or just below by the end of the year. In 2023, the zloty should continue to rise, even below 4.40 on 4q23. This will help, among other things, an expected decrease in the value of the dollar, which is usually favorable for the currencies of Central and Eastern Europe.

From the height of the panic caused by Russian aggression, the zloty rose by about 7% against the euro, despite the simultaneous strengthening of the dollar, which is generally unfavorable for the currencies of Central and Eastern Europe. This is the effect of, among other things, changes in NBP policy, the Central Bank decided to combat inflation by significantly raising interest rates. At the same time, the European Central Bank keeps interest rates unchanged, and is likely to decide on the first rate hike only at the end of the year. As a result, the disparity in interest rates against the euro, which is favorable for the zloty, will increase in the coming months.

See also: Exchange rates: inflation frenzy – the dollar and the zloty surprised the Poles, the euro fell again!

This overlaps with the change in the Ministry of Finance’s policy. Currently, funds from abroad will be exchanged in the market. This will increase the demand for the zloty when the KPO is unlocked. In previous years, the Ministry of Finance exchanged foreign money with NBP, not in the market.

This is also evidenced by the results of our €/PLN equilibrium model based on other market variables (eg swaps). Indicators are currently pointing at around 4.50, see top chart.

See also: Check how much is the dollar, ruble, pound, franc, yen, koruna, euro and forint

In the coming months, the appreciation of the zloty may be hampered by political tensions, especially those related to the war in Ukraine. Moreover, survey data shows that domestic producers are making purchases in reserves, which may be one of the reasons for Poland’s deteriorating trade balance.

Macroeconomic outlook – Poland and the world

Poland

Strong GDP growth in early 2021/202 raised the 2022 average significantly (high starting point). Later in the year, he expected a slowdown due to the negative impact of the war. It is enough to raise GDP to its potential and close the high positive production gap from Q122. Inflation will remain high in 2022-23 due to the large cost component (energy, transportation, materials, raw materials), but also strong second-round effects.

See also: Urgent: Earthquake in the national economy: Industry PMI is scary, record CPI inflation too

Euro-zone

The European economy is more vulnerable than the United States to the negative effects of war because of its sensitivity to energy prices from Russia, supply disruptions, and other trade relations. Moving away from Russian energy exacerbates inflation expectations. The European Central Bank will start tightening in July, but on a smaller scale than the Fed.

See also: Inflation in the euro area is accelerating and exceeds 7%! Watch how the euro reacted to the dollar

United States of America

Weaker start to 2022, but the outlook for the second quarter of 2022 looks good and the risk of a recession remains limited. The first signs of an economic slowdown are emerging as a response to the strong tightening of financial conditions, which, however, will not prevent the Federal Reserve from further hikes. The market believes that the Fed is achieving its first successes in fighting inflation.

See also: Inflation in the United States is falling! Check the reaction of the US dollar against the euro

financial markets

From a 2H22 EUR/USD recovery, the Fed will come to an end of the rate hike and the European Central Bank will start, war anxiety should fade in favor of the dollar. Rising NBP and KPO release indicate further appreciation of the zloty. In the short term, the risks of the zloty are China’s desperate war against Covid (but emerging market currencies are already recovering) and war.

See also: Things will happen in the currency market!