Poland's bruised currency recovers but hinges on macro data, Moody's review
The Polish zloty seems to be largely recovered from the pressure of a recent interest rate decision but is now hinged on global macro publications as well as Poland's credit rating revision by the Moody's agency due late Friday.
Poland’s currency has been under constant pressure since the start of September, when the country's Monetary Policy Council (MPC) surprised markets with a 75 basis points rate cut. This, along with the central bank's governor Adam Glapiński's dovish comments after the rates decision, pushed the currency from 4.46 to nearly 4.70 against the euro, a level last seen in March this year.
The MPC cut the main interest rate to 6 percent, arguing that the inflation, which was still in the double-digit area in August, was set to decline quickly.
Since then, the zloty has managed to trim part of its losses thanks to a bunch of soothing comments, including Glapiński's interview for the Polish Press Agency (PAP), in which he said that the room for interest rate cuts has narrowed markedly since the last rate decrease.
Foreign factors, however, are weighing on the currency. The Federal Reserve held the US interest rates unchanged on Wednesday, while also suggesting another rate hike before the end of the year and fewer rate cuts next year than initially expected amid inflation "too high for too long."
By contrast, the Swiss National Bank (SNB) and Bank of England (BoA) surprised markets on Thursday by keeping rates unchanged at 1.75 percent and 5.25 percent, respectively, against market expectations for 25 bps hikes.
Following the string of sittings by central banks, the focus is shifting. According to analysts from Poland's bank Millennium, now the global macro prints will be important, especially the flash Purchasing Managers Index (PMI) readings in the euro zone and in the US. Still, the US dollar is already stronger on the back of deteriorating global indicators for industry and services, they said.
"A hawkish message" from the Fed is another factor supporting the USD, and a strong USD is usually not good news for the currencies of emerging markets, including the zloty.
"Thursday decisions by SNB and BoA have not managed to soothe a negative market sentiment, which led to a visible global depreciation of the UK pound and Swiss franc" said analysts of Poland's biggest bank, PKO BP.
"In such circumstances, the two main PLN pairs (PLN/EUR and PLN/USD - PAP) are behaving in a stable manner, demonstrating the strength of the Polish zloty, which again is appreciating versus the Hungarian and Czech currencies," they summed up.
The review of the Polish credit rating by Moody's slated for late Friday is a domestic factor with a significant role to play.
"It will be interesting to see how the agency perceives Poland's budget for the next year, as it assumes a significant increase in borrowing needs," Millennium analysts warned.