Currency report: Fed cuts boost złoty

This was, of course, trumpeted throughout the international media and the decision had a strong impact on currency markets.

The decrease of the main rate from 4.25 percent to 3.50 percent was surprising since the FOMC was expected to meet and decide on interest rates on January 30. Financial markets reacted instantly.

The EUR/USD, which was on the decline - reaching even $1.4370 during the week - rebounded and finished the week at $1.4710. A weaker dollar also helped the GBP/USD, which climbed all the way to $1.9830 from $1.9340. Now, much will depend on what the Fed does during its scheduled meeting at the end of July. Another interest rate cut, by even 50 basis points, is very probable.

The Polish złoty gained after the FOMC decision. Risk aversion declined and investors were more willing to invest in emerging markets such as Poland. The good condition of the Polish economy was confirmed by macroeconomic reports, as well. Data showed retail sales had increased by 12.4 percent in December, the unemployment rate was at 11.4 percent (as forecast) and net inflation increased to 1.7 percent.

All those factors combined caused the złoty to strengthen against major currencies. The USD/PLN declined from zł.2.5420 to zł.2.4520, while the EUR/PLN dropped from zł.3.6630 to zł.3.6090.

Adam Narczewski, X-Trade Brokers Dom Maklerski S.A.