The start of June has not been favorable for the Polish currency. The second trading session of the month opened with losses for the PLN, which struggles to find momentum for a rebound. Despite Switzerland’s return to deflation, the CHF/PLN exchange rate has risen, highlighting the zloty’s weakness on Tuesday.
Political Risk Pressures PLN and WSE
Although yesterday morning’s losses for the zloty and the Warsaw Stock Exchange were partially recovered, today the charts have slipped back to Monday’s weakened levels. The main reason is increasing political uncertainty in Poland.
Yesterday evening, Prime Minister Donald Tusk announced plans for a confidence vote on the government in June. While the probability of the current coalition’s collapse remains low, this initiative introduces the risk that the government may fail to secure parliamentary support. This factor adds to market uncertainty and will continue to weigh on the zloty until fully resolved.
Investor concerns are heightened by the opposition leader’s call for the formation of a technocratic government. Rising political chaos is being noticed by investors, who are turning away not only from the national currency but also from equities.
By midday, EUR/PLN climbed to 4.28 PLN, USD/PLN to 3.75 PLN, and GBP/PLN to 5.07 PLN. Simultaneously, the Warsaw Stock Exchange declined—morning losses wiped out gains from yesterday afternoon. At 14:00, the WIG20 index stood at -1.22%, signaling red on the board.
External Factors Provide No Relief
Monday’s zloty rebound was supported by a weakening US dollar, to which PLN is negatively correlated. However, today the dollar is gaining strength, driven by the US administration’s recent decision to maintain existing tariffs on certain Chinese imports until August 31. This extension delays negotiations that could lead to an agreement.
Additionally, reports of planned talks between the leaders of the two superpowers this week have been interpreted by markets as de-escalation of trade tensions. This is reflected in a modest return of confidence to US assets, including the dollar. The EUR/USD pair dropped from 1.145 to around 1.138.
The decline in EUR/USD accompanies a sharper-than-expected drop in eurozone HICP inflation from 2.2% year-on-year to 1.9%, below the forecasted 2%. The greenback is also strengthening against the Swiss franc and British pound.
China’s Manufacturing Weakness Adds Pressure
A brief respite in the tariff conflict would be welcome for China, which today reported a disappointing final Caixin PMI for manufacturing. Despite expectations of growth to 50.6 points, the index fell to 48.3 points—signaling contraction (below the 50-point threshold). This weakening industrial performance is a heavy burden on the world’s second-largest economy.
Deflation in Switzerland
June started with key economic data from Switzerland. GDP grew by 2.0% year-on-year and 0.5% quarter-on-quarter—both above expectations—even as retail sales fell 1.3% year-on-year versus a forecasted 2.1% increase.
The slowdown in sales growth likely contributed to consumer inflation slipping below zero. Prices in Switzerland are now statistically 0.1% lower than a year ago. Although this matched consensus forecasts, it led to franc weakening due to expectations that the Swiss National Bank might cut interest rates below zero again. The current policy rate is 0.25%.
The Swiss franc is losing ground today against the dollar, euro, and pound. The exception is CHF/PLN, which has risen from 4.55 to 4.57 PLN since morning due to the zloty’s weakness.
Author: Dawid Górny, Currency Analyst, Walutomat.pl
Source: ceo.com.pl
