Exchange rates. The zloty remains strong not only thanks to the election results

The zloty has been having a very good run lately. It is supported by both local and global factors. The effect is the dollar once again at PLN 4 and it will not necessarily be a barrier that will stop our currency.

The dollar was already worth less than PLN 4 in July this year, but since then it has gained significantly, largely after the surprising September decision of the Monetary Policy Council to sharply reduce interest rates. However, later the MPC surprised investors again. Not only did she not change interest rates, but President Glapiński also suggested no changes at least until March. This allowed the EURPLN pair to go below 4.40 for the first time since August 2020. Investors were very pleased with the results of the parliamentary elections, but also with the surprising “post-election” change in the MPC’s attitude.

The conflict in the Middle East has stopped heating up the markets

Global factors were also triggered. The market no longer remembers the conflict in the Middle East at all, and slightly better data on October inflation in the US published last week caused euphoria, expressed, among others, a significant discount in the dollar. In these circumstances, the USDPLN rate dropped significantly.

While the reaction may have seemed excessive, the fact is that the inflation outlook in the US (and indeed in the Western world in general) is steadily improving and the Fed will easily have room to cut interest rates next year. Although the head of the Fed is still trying to scare the markets with a possible increase, the valuation clearly communicates at least 4 cuts next year.

– There are optimistic valuations for the first rate cuts in the US between May and June 2024, and the probability that the Fed will raise interest rates in investors’ valuations has dropped to 5%. – says Michał Stajniak, XTB expert, in an interview with MarketNews24.

US CPI inflation data for October indicated a greater than expected slowdown. The main CPI inflation rate slowed from 3.7 to 3.2 percent. y/y (expected 3.3% y/y), while the base indicator dropped from 4.1 to 4.0%. y/y (expected 4.1% y/y). Psychologically, what turned out to be particularly important for investors was that month-to-month inflation changed by 0%, so prices finally stopped rising.

Reducing inflation is becoming difficult

With a further decline in inflation, it will not be so easy. This also applies to Poland, although Polish inflation is twice as high. However, the Fed wants prices to start falling. And there is a chance for a price drop in the USA.

In such a situation, it is likely that the dollar will depreciate against the currencies of emerging market countries.

– In such a situation, capital goes to places with higher interest rates and it is already visible that it is flowing away from the US dollar, which is also confirmed by the high increase in stock market indices – comments the XTB expert. – Statistically, if the dollar strengthens throughout the year, it weakens in December.The euro should strengthen against the dollar. From 1.08 to probably 1.10 on the EUR/USD pair.

There will also be a chance to break the level of PLN 4.0 on the USD/PLN pair, but this depends on our internal situation. We had euphoria on the currency market after the elections, and now the chances are increasing that KPO-related capital will appear and larger infrastructure investments will begin in Poland.

What mood will Swiss franc borrowers be in? The franc against the zloty is falling significantly, we are below the level of 4.50.

– This level should be broken and there are chances that we will fall to the lowest levels since the beginning of 2020 – assessed by M.Stajniak from XTB. As a reminder, in February 2020, the franc fell to PLN 4.25 per franc compared to the Polish zloty.