Eurozone entry to shore up the złoty
This will be part of a wider Eastern European trend, as new member states' currencies solidify in advance of eurozone entry, according to Goldman Sachs' analyst Erik Nielsen.
His comments came at the investment bank's foreign exchange conference. Currently Poland, the Czech Republic, Hungary and Slovakia are getting ready for ERM-2, the European Exchange Rate Mechanism, designed as a forerunner to joining the single currency, and the next two years will see the region fulfilling fiscal requirements before being allowed to join the eurozone.
Each of these currencies had a very strong 2004, and this trend is likely to continue. Poland is in a particularly good position, as it mainly imports raw materials, such as crude oil, in dollars, but exports into the eurozone in euro. According to Nielsen, foreign investors' interest in the currency is apparent in the high level of portfolio flows into the złoty, which are around three percent of GDP on a daily basis.
However, eurozone entry will probably have a negative impact on foreign currency local bonds, as spreads are likely to collapse ahead of joining the single currency and will be unattractive to investors. (Reuters)
His comments came at the investment bank's foreign exchange conference. Currently Poland, the Czech Republic, Hungary and Slovakia are getting ready for ERM-2, the European Exchange Rate Mechanism, designed as a forerunner to joining the single currency, and the next two years will see the region fulfilling fiscal requirements before being allowed to join the eurozone.
Each of these currencies had a very strong 2004, and this trend is likely to continue. Poland is in a particularly good position, as it mainly imports raw materials, such as crude oil, in dollars, but exports into the eurozone in euro. According to Nielsen, foreign investors' interest in the currency is apparent in the high level of portfolio flows into the złoty, which are around three percent of GDP on a daily basis.
However, eurozone entry will probably have a negative impact on foreign currency local bonds, as spreads are likely to collapse ahead of joining the single currency and will be unattractive to investors. (Reuters)
