The past several months have been a good period for the Polish currency. BY Dawid Górny - FX Dealer at Currency One
In 2023 alone, the euro exchange rate decreased from PLN 4.70 to PLN 4.35. This year has been no different. In the first quarter, the Polish currency continued to strengthen. Then, at the beginning of April, the EUR/PLN rate dropped
to PLN 4.25 and tested the indicated support level three times. What will the second half of 2024 hold?
Are we facing a reversal of the trend combined with a depreciation of the PLN?
Several important facts have helped improve the exchange rate of the Polish currency. Last year's
elections resulted in a change of government, which improved relations with the European Union, and
thus worked to strengthen the PLN. Additionally, the Monetary Policy Council has maintained a high
interest rate of 5.75% and does not plan to lower it by year’s end, in order to support the currency, even
though inflation is decreasing towards the National Bank of Poland’s target. Furthermore, the Polish
stock market has recorded gains, consistent with positive forecasts for the country's economic
development, which should bolster the PLN.
However, significant external factors pose a threat to the Polish złoty. Geopolitical tensions are number
one on the list of destabilizing trends. The uncertain situation in the Middle East, combined with Poland’s
proximity to Ukraine, create uncertainties that could impact the currency. In times of increased global
unrest, money tends to flow towards safe-haven assets, which do not include the Polish currency.
Another argument against the PLN is the receding prospect of interest rate cuts in the USA. At the end of
2023, investors expected the first cut to happen in March. We now know that this didn’t occur. Currently,
according to the CME FedWatch Tool, the chances for a cut in June are slim. The next real possibility is
in September (approximately 45%), but the lack of a majority in favor suggests uncertainty. For
comparison, the ECB plans to cut at the beginning of June. If this proves true, the Fed may be one of the
last major central banks to begin a cycle of rate cuts. Such a scenario could result in a lack of
incentive for capital to migrate from the US towards Europe, which would disadvantage the PLN.
For now, we see that the PLN is struggling to maintain last year's gains against other major currencies.
The main factors determining currency rates seem to be interest rates and the geopolitical situation,
which, in the case of deterioration, could lead to losses for the Polish currency compared to the
beginning of the year.
