The zloty exchange rate will depend more on external factors, changes in risk sentiment and positioning, assessed by Ebury analysts: Enrique Diaz-Alvarez, Matthew Ryan, Roman Ziruk, Itsaso Apezteguia and Michał Jóźwiak. Analysts pointed out that investors after the elections in the autumn in Poland expected to unblock funds from the KPO, and last week’s announcement of the launch of applications for 137 billion euros of EU funds could be a “short-term impulse” for the PLN. The zloty strengthened to its strongest position since mid-December.
Below is the comment of Ebury:
Last week was exceptionally poor in macro readings and news on monetary policy, and most of the major currencies remained in very narrow ranges. Despite this, the zloty managed to strengthen to the strongest position since mid-December. The pound and the euro were moving very similarly, gaining slightly against the dollar, but in the end there was no main trend. We should see more volatility this week, although there will still be relatively little data capable of moving markets. The most important will be the publication of the Fed’s possible measure of inflation for January (Thursday 29.02) and the preliminary reading of February’s price dynamics in the euro area (Friday 01.03). The week will be completed by a series of speeches by the Federal Reserve, the European Central Bank and the Bank of England.
PLN
The golden had a certain strength last week – he was doing better than the other currencies of the region and the G10 currency, strengthening to the strongest position since mid-December against the euro (4.30). We are confronted with a positive risk sentiment and favourable local news – in particular, a confirmation that the European Commission intends to unlock 137 billion euros from cohesion funds and reconstruction this week, as President Ursula von der Leyen announced on Friday’s visit to Poland. However, given that investors after the October elections expected to unlock funds, it is difficult to say with certainty whether it will not end with a short-term impulse. A scenario is possible where markets will quickly shift attention to other topics. In addition to the above, last week also brought many macroeconomic readings from Poland, which draw a rather mixed picture of the beginning of the first quarter. Solid retail sales and strong wage growth are positive. However, industrial production and fatal data on construction and assembly production have failed, suggesting that the recovery is uneven, and the economy still needs time to get back on its feet. Uncertainty in inflation is not falling, because the signals concerning it are similarly ambiguous. An additional context this week will be provided by Thursday’s (29.02) revision of GDP in the fourth quarter and Friday’s PMI reading for industry (01.03). However, they will not affect the zloty, the exchange rate of which should depend more on the news from the outside, changes in sentiment to risk and positioning.
EUR
PMI indicators for the euro area continue to draw a picture of the shrinking economy, which is dragging down the problems of the industrial sector and poor demand in China. However, there were some optimistic signs. After half a year, the PMI for services returned to the 50-point boundary level, resulting in an aggregate index rising to 48.9, which may mean a tunnel light. The preliminary inflation reading (01.03) will be crucial to set a deadline for ECB rates cuts, which we invariably expect earlier than the Fed.
USD USD
Last week’s data from the US still draws a picture of a strong U.S. economy. The collective PMI fell slightly, pulled by the indicator for services. Unlike the situation in the euro area, all key measures indicate expansion, and the PMI for industry is the highest in 17 months. Moreover, the number of preliminary declarations of the unemployed (which returned to the level of approx. 200 thousand.) It shows the continued strength of the American labour market.
This week, both markets and the Fed will focus on the bank’s preferred measure of PCE inflation – more specifically whether it will be as worrying as January CPI inflation. Any surprises upwards may allow the dollar to break out of the narrow range in which it lasts in February.
GBP
PMI for business activity has strengthened optimism about the growth prospects of the UK economy in 2024. The aggregate index slightly exceeded expectations. The level of 53.3 points indicates a fairly healthy expansion continued by the services, while the industry is left behind.
The UK’s junk in contrast to those from the eurozone and, in our view, is the main factor allowing the pound to perform so well in 2024. We will not know any key data this week, so the exchange rate of the British currency will depend mostly on the news from outside the country.
Source: Ebury and ISBnews
