Currency report: The złoty retreats

The past week was not good for the Polish currency. The złoty lost ground against all the major currencies except the American dollar, which performed even worse.

After a period of consolidation, the EUR/USD is back on track to reach new record highs. The main impetus came from Germany, where the Ifo Institute reported that its Business Sentiment Index had increased to 103.5 points from the previous 102.4. This much-better-than-expected reading of the publication inspired investors to believe again in the strength of the euro zone economy. The EUR/USD advanced from $1.5490 to $1.5760 over the course of the week.

The złoty gained against the dollar, strengthening from zł.2.1830 to zł.2.1610, but performed much worse against the euro and the Swiss franc. At the beginning of the week it seemed that another interest rate hike in Poland would be possible since inflationary pressures are still strong. The Average Wages publication showed that wages in Poland had increased by 12.6 percent over the last year, while analysts had forecast just a 11.5-percent increase, for example.

On Wednesday the situation changed, however, when the core inflation showed a lower-than-expected reading of 2.8 percent. The news sent the EUR/PLN all the way to zł.3.42, compared to the beginning of the week when it was quoted at zł.3.38, close to its all-time low. The CHF/PLN jumped from zł.2.0640 to zł.2.1065 during the week.

Adam Narczewski, X-Trade Brokers Dom Maklerski SA