The euro / zloty exchange rate may fall! The zloty is undervalued against the dollar and the common currency – foreign exchange rates
Last week we saw a further rise in the strength of the zloty and the Central and Eastern European currencies. However, the volume of the movement slowed down, for example the EUR/PLZ fell from below 4.80 to nearly 4.70. This was particularly evident at the end of the week, when hopes that peace talks between Russia and Ukraine would succeed once again dwindled.
We expect the EUR/PLN exchange rate to go back below 4.70
Available data confirm that the economic situation in the country is still strong before the war. After the start of the fighting, domestic demand in Poland, in turn, would boost the refugee influx. This, in turn, supports the scenario of relatively strong GDP growth (especially in times of conflict in the East), but with higher inflation rates. This environment justifies a further increase in expectations of an NBP rate hike. The scenario of a sharp rise in interest rates in Central and Eastern Europe should be supported by the decision of the Hungarian Central Bank this week.
See also: Currency forecast: the euro exchange rate (EUR / PLN) drops sharply? What about Eurodollar (EUR/USD) rates?
The risk factor of Russia’s technical deficit has also disappeared, at least for the time being. Russia has to deal with large foreign payments at the end of the month and beginning of April. According to media reports, Russia has paid its dollar obligations under the terms.
We expect the EUR/PLN to continue declining in the coming weeks
We see a fairly good chance that the Q222 price will approach 4.50. Recent comments give hope for the influx of financial aid to accept refugees from Ukraine. In line with the announcements of the Ministry of Finance and the National Bank, these funds will be exchanged on the market (selling currencies, buying zlotys). It overlaps with the scenario of faster increases in NBP rates. However, there are still many potential twists and turns on the front and in Russia’s negotiations with Ukraine.
See also: Check the latest global economic forecasts and see how much you can pay for the euro in 2022 and 2023
Relative Value Models
- Relative value models evaluate the current deviation of market variables from their theoretical values calculated on the basis of other market variables.
- The depreciation of the zloty against the dollar and the euro has clearly decreased since the height of tensions arising from Russian aggression. However, according to our estimates, the strong expectations of an interest rate increase in Poland justify further strengthening of the zloty against the euro and dollar. The models also suggest scope for asset swaps to tighten, even though bond yields themselves could rise further.
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