Fortune favors the zloty. Is it time to exchange currencies before the holidays?

– The zloty is very strong, but the dynamics of the zloty strengthening since the beginning of this year has already weakened – says Michał Stajniak XTB in an interview with MarketNews24. – What is important now is that although inflation in Poland has rebounded to 4.2%, it will not be as high as feared due to the restoration of VAT on food or changes in energy prices. There will be no increase in inflation to 8-9 percent, CPI inflation will probably stay at 5-6 percent.

In the last five years, we paid the least per dollar in December 2020 (PLN 3.61), and the most in October 2022 (PLN 5.05).

Why was the zloty weakening?

There are many external factors that favored the zloty. We can certainly talk about the May period of records on financial markets. The records were recorded on Wall Street in response to slightly better inflation data from the US, as well as the appearance of a new model from OpenAI, which reignited the artificial intelligence boom.

In Europe, we have records on the metal markets for gold and copper, but strong increases also result in the prices of silver, nickel and zinc. These are quite mysterious increases, partly stimulated by information that the Chinese government is forcing state-owned companies to make “intervention purchases of real estate.” Nevertheless, the scale of the increases is very large and does not necessarily correspond to the incoming data on business activity. In any case, such a trend generally helps emerging markets, and this helps strengthen the zloty.

Our currency is additionally supported by the attitude of the Monetary Policy Council, which, despite recent favorable inflation data, signals a lack of readiness to reduce interest rates this year. At the same time, we already know almost certainly that the ECB will reduce interest rates in June.

Gold resistant to external dangers

These trends are so favorable that the Polish market does not react at all to the disturbing news from Ukraine and it can be assessed that the premium for the risk of the “frontline country” basically does not exist today.

As a result, in May the euro/zloty exchange rate was the lowest since January 2020, the GBP/PLN exchange rate was the lowest since December 2022, and the exchange rate of the much hated CHF/PLN was the lowest since February 2022. However, USD/PLN was still holding on, but even here we tested the 3.90 barrier.

However, the exchange rate cannot be viewed only nominally. If we take into account the difference in inflation since then, the adjusted exchange rate today is similar to that in August 2008! Of course, this is again a simplification. Inflation in Poland is largely inflation in services, where prices are rising also due to the growing wealth of society. The actual fundamental exchange rate is impossible to determine, but it can be argued that the zloty is already noticeably overvalued.

– Now core inflation will be very important, especially since the dynamics of wage growth in Poland is very high – comments the XTB expert. – The limit of PLN 3.90 per dollar remains a very important psychological level, which will be difficult to breach and will prevent the zloty's rally.