The dollar fights back as all eyes turn east
The USD/PLN cross climbed to zł.3.14. The złoty followed moves on the international markets, where the U.S. currency triumphed over other major currencies. Traders say there is no clear trend now.
Investors eyed any signals that the rate-setting Monetary Policy Council would significantly cut borrowing costs this year. Softer inflation data (4.4 percent in December versus 4.5 percent in November) released last Monday did not satisfy the market. Economy Minister Jerzy Hausner reminded investors that the strong złoty negatively weighed on the growth outlook, but the markets did not respond significantly.
The central bank seems to have a slightly different opinion. MPC member Halina Wasilewska Trenkner signaled that if economic growth remained above 4.5 percent the council would not consider significant rate cuts this year. However, she added that it was likely that the monetary policy bias, depending on wage prices, might be changed from 'restrictive' to 'neutral'. She also reiterated that currency intervention would eventually prove fruitless due to strong fundamentals.
Significant swings of the złoty are not expected in the short term. However, in the long term the złoty will face downward pressure due to the upcoming general elections and their uncertain results. The next MPC meeting (January 25-26) should be closely watched, but hardly anyone anticipates the council to cut the cost of money. The złoty should again mainly follow moves on the international markets without any clear trend.
The U.S. currency had another good week on the international markets. This time the dollar broke the psychologically important level of $1.30 against the euro and dropped to a two-month low of $1.2919. The greenback was strengthened by the better-than-expected capital net-flow data. A report showed that in November the U.S. attracted more than the necessary foreign capital ($81 billion) to cover the record trade gap ($60.3 billion). Data was heavily supportive of the dollar but not good enough to push it lower. However, the greenback later continued its downward path due to technical factors and further optimistic macro data.
We expect the market to focus mainly on the G7's first regular meeting in February this year. There, China is expected to show readiness to let the yuan appreciate. This would boost other Asian currencies, the yen in particular. If so, the USD/JPY cross could soon test the JPY100 level. Many traders are waiting for this moment. However, rumors are spreading about a possible yen-selling intervention and Asia's reluctance to share the burden of the greenback's weakness. Consolidation on the foreign exchange seems to be inevitable until the final results of the G7 meeting are known.
Krzysztof Rup, Warsaw Investment Group (WGI)
Investors eyed any signals that the rate-setting Monetary Policy Council would significantly cut borrowing costs this year. Softer inflation data (4.4 percent in December versus 4.5 percent in November) released last Monday did not satisfy the market. Economy Minister Jerzy Hausner reminded investors that the strong złoty negatively weighed on the growth outlook, but the markets did not respond significantly.
The central bank seems to have a slightly different opinion. MPC member Halina Wasilewska Trenkner signaled that if economic growth remained above 4.5 percent the council would not consider significant rate cuts this year. However, she added that it was likely that the monetary policy bias, depending on wage prices, might be changed from 'restrictive' to 'neutral'. She also reiterated that currency intervention would eventually prove fruitless due to strong fundamentals.
Significant swings of the złoty are not expected in the short term. However, in the long term the złoty will face downward pressure due to the upcoming general elections and their uncertain results. The next MPC meeting (January 25-26) should be closely watched, but hardly anyone anticipates the council to cut the cost of money. The złoty should again mainly follow moves on the international markets without any clear trend.
The U.S. currency had another good week on the international markets. This time the dollar broke the psychologically important level of $1.30 against the euro and dropped to a two-month low of $1.2919. The greenback was strengthened by the better-than-expected capital net-flow data. A report showed that in November the U.S. attracted more than the necessary foreign capital ($81 billion) to cover the record trade gap ($60.3 billion). Data was heavily supportive of the dollar but not good enough to push it lower. However, the greenback later continued its downward path due to technical factors and further optimistic macro data.
We expect the market to focus mainly on the G7's first regular meeting in February this year. There, China is expected to show readiness to let the yuan appreciate. This would boost other Asian currencies, the yen in particular. If so, the USD/JPY cross could soon test the JPY100 level. Many traders are waiting for this moment. However, rumors are spreading about a possible yen-selling intervention and Asia's reluctance to share the burden of the greenback's weakness. Consolidation on the foreign exchange seems to be inevitable until the final results of the G7 meeting are known.
Krzysztof Rup, Warsaw Investment Group (WGI)
