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Polish Złoty Remains Strong as Monetary Policy Remains Uncertain

INVESTINGPolish Złoty Remains Strong as Monetary Policy Remains Uncertain

We perceive numerous encoded messages by Glapiński, President of the NBP, as being somehow hawkish – the market increasingly doubts whether monetary policy will cut rates anytime before Q2. This situation might play out well for the Polish złoty, if the absence of rate cuts would put some pressure on currency appreciation.

Attention on currency markets was drawn by unusually low volatility. Almost all major currencies ended the week not moving more than 0.5% compared to its beginning, which is a quite rare phenomon. Higher-than-expected CPI inflation in the US initially caused turmoil and supported the dollar’s appreciation. By the end of the week, however, its exchange rate normalized, as markets returned to pricing in an 80% chance of a rate cut by the Federal Reserve in March, following a Friday producer inflation reading (PPI) that was lower than expected. This also led to a drop in the yield of treasury bonds and a rise in risk assets.

This week will be fairly quiet in terms of macroeconomic readings and central bank statements, although there will be numerous statements from ECB and Fed officials. Speeches from Federal Reserve representatives will be particularly important – we will see whether the bank will continue to delay market expectations regarding rate cuts in March and 165 bp. cuts in 2024. In our view, they are decidedly too aggressive. As for the data this week still ahead of us, the most important will be December inflation in the UK (Wednesday, 17.01).


The złoty continued its moderate depreciation last week. The EUR/PLN rate was just above 4.35 on Friday, which is becoming a more and more grounded reference point for the pair. The Monetary Policy Council, as expected, did not change the level of NBP interest rates. President Adam Glapiński indirectly suggested that cuts should not be expected in Q1 of this year, and underlined the uncertainty in the context of inflation changes in the second half of 2024. Investors increasingly doubt the scale of policy easing, and some economists believe that the bank will leave rates unchanged until the end of the year. We still believe that there are reasons for some policy easing in 2024, but high uncertainty in the context of inflation significantly hampers precise forecasts.

Looking at macroeconomic data, we see that the most important last week were those related to the current account. The surplus of 1.3 billion euros in November was slightly lower than expected, but it did raise its 12-month sum. Future surpluses are good news for the złoty and reinforce the belief that the Polish currency will remain strong.


The economic data from the eurozone continue to show stagnation, this has yet to result in job losses and employment remains at a good level. Last week’s retail sales reading was slightly better than expected, but it was negative year-on-year (-1.1%), posting the fourth month-on-month decline in the last five months.


A small surprise in the upward reading of December CPI inflation has not convinced markets to revise their expectations for a Federal Reserve rate cut in March. It seems that the momentum of the most important, core measure of price growth is stabilizing just below 4%, which is definitely too high – the last straight in the fight against inflation may turn out to be more difficult to overcome than investors expect.


The November GDP reading was a positive surprise, reducing fears of a technical recession in Q4. If we believe the latest PMI readings, it seems likely that economic activity increased again in December, which would help the British economy avoid a technical recession.

Authors: Enrique Diaz-Alvarez, Matthew Ryan, Roman Ziruk, Itsaso Apezteguia, Michał Jóźwiak – Ebury analysts

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