The Polish zloty has strengthened over the past two years. However, the most recent strengthening of the zloty is the result of the US Federal Reserve’s (Fed) policy and what has been happening in Asia. The lack of interest rate cuts in Poland this year is of much lesser significance.
“The exchange rate of the zloty has been strong for a long time, especially against the dollar, and recently the zloty has been focused around the dollar due to changes in expectations regarding the Fed’s policy,” said Dr. Przemysław Kwiecień, chief economist at XTB, in an interview with MarketNews24.
Earlier this spring, there were many opinions that the Fed might not reduce its interest rates at all this year. Now, following the conference in Jackson Hole, Fed Chairman Jerome Powell announced not just one cut, but an entire normalization process. The expectation is that rates in the United States will drop to 3%, at least that’s how the markets see it.
Current interest rates in the United States are between 5.25-5.5%, which, according to the standards of the last two decades, is a high level.
The conference in Jackson Hole is a special event since the second round of quantitative easing (QE2) was announced there. The market is expecting a rate cut of 100bp by the end of the year and a further 125bp (equivalent to 9 cuts of 25bp) by the end of 2025.
Important to note, the market judges that the rates will no longer be reduced and will stay at the 3% level. The markets are currently “buying” the vision of a soft landing. This is favorable for risky assets and a weak dollar, especially against Asian currencies (due to rate hikes in Japan).
“Asian currencies have appreciated the most, as a result of the decision by the Bank of Japan, which previously missed changes in the policy of raising interest rates, and two recent increases that have strengthened the yen. The strength of the yen has forced other Asian currencies because Asian countries would lose their regional economic competitiveness,” says the XTB expert.
Important to note in the scenario is that the strengthening of the zloty is the result of the Fed’s policy and what has been happening in Asia.
The zloty sailed the weakness of the dollar and benefited from the breakout at the top on the EURUSD line. On the USDPLN pair, we have no support until the 3.60-3.65 zone. However, it is worth noting that it still holds the 4.25 support on the EURPLN pair.
“The zloty lives sentimentally, it is strong when the dollar weakens. The zloty struggles when there are problems with global liquidity and markets flee to the dollar.”
“In the coming months, after the introduction of interest rate cuts by the Fed, the zloty’s exchange rate will depend on the EUR/USD currency pair and the global sentiment regarding whether the US economy will remain in good condition. The market is pricing in this scenario, but if it happened differently, the zloty would suffer,” summarizes Kwiecień from XTB.
Source: https://managerplus.pl/dlaczego-zloty-jest-tak-mocny-wplyw-polityki-fed-i-wydarzen-w-azji-33658
