Currency report: Euro on the offensive

As rates in Poland were cut by 25 basis points to record-low levels, the ECB was raising its rate to 2.5 percent. The złoty, which attracted some increased demand in the first part of the week, failed to hold onto its gains.

The euro was trading for as little as zł.3.765 on Tuesday, while Polish T-bonds quickly changed hands, with yields largely dropping. Later, after the Monetary Policy Council decided to ease its policy (cutting the NBP reference rate down to four percent), a bit of profit-taking was triggered on the debt market, as investors came to grim conclusions after pondering over future rate cuts.

However the rise in the EUR/PLN rate that followed had more to do with a vast dollar sell-off than the Polish currency. By the end of the week, EUR/USD was up by $0.02 to $1.2040. The secret of the sudden surge in the euro's popularity were very "hawkish" comments by the head of the ECB, Jean-Claude Trichet, that backed the ECB's rate hike.

The end of the week saw the złoty at zł.3.81 versus the euro, and around zł.3.1650 against the dollar.

Krzysztof Kowalczyk

WGI Dom Maklerski