The złoty's high life
Worrying levels
The euro dropped to 4.15 PLN. The price of US currency fell to 3.11 PLN. This time we witnessed more verbal interventions from top officials threatened by the złoty's surge and its impact on growth outlook and euro adoption.
This eased the złoty's rally but not for long. Prime Minister Marek Belka called for prompt talks with the central bank. According to Belka, current levels are potentially worrisome. However, the central bank governor Leszek Balcerowicz sees no need for currency market intervention and plays down possible action in the near term, though according to the bank's quarterly inflation projection report, the złoty is overvalued in relation to fundamentals. The governor's stand is supported by the Finance Ministry.
Slow exports
The central bank deputy governor Krzysztof Rybiński reminded us that the bank must be prepared for interventions during its stay in the ERM-2 regime. The bank also announced that the current account deficit amounted to E224 million in September from a revised E324 million in August, mainly due to a slowdown in export dynamics. The złoty was almost unmoved by the data. Coming days should bring more verbal interventions and continuing growth in the złoty.
On the international markets the US currency was softer against major currencies despite positive US economic data. The euro peaked at an all-time high 1.3380. The British pound rose over the past week to 1.9435, mainly due to renewed rate hike speculation in 2005. The greenback also hit 5-year lows versus the yen. The US ISM index (shows business conditions in the manufacturing sector) rose to 57.8 percent in November form 56.8 percent in October, the first growth in four months. Both personal income and consumption rose more then expected. The Fed's Beige Book reported continued US growth. Finally, GDP grew at 3.9 percent in third quarter. Nevertheless the dollar continued its downward trend due to concerns over the US 'twin deficit'-budget and trade.
Yen to the rescue?
There seem to be no signs of a halt to this bearish sentiment. Investors are threatened by possible (some say inevitable) currency interventions and are closely watching any concerns voiced by the monetary authorities. Japan's Vice Finance Minister Hiroshi Watanabe suggested there is room for harmonized action on the currency market between Europe and Japan. Market participants played down this information and continued selling the dollar. On Thursday the European Central Bank decided to keep its key interest rate unchanged at 2 percent. Jean-Claude Trichet, the ECB's chief, did not back up Watanabe's idea of joint market intervention to curb the dollar's weakness.
The strong euro is being blamed for fading economic recovery. The same day the greenback rebounded but failed to gain more due to surprisingly soft November US job data.
In the coming months calls are likely to increase on the US to reduce its budget and trade deficit and put pressure on China to allow a more flexible exchange rate. However, the dollar is unlikely to rise significantly and break 1.30 by the end of this year.
Krzysztof Rup, Warsaw Investment Group (WGI)
The euro dropped to 4.15 PLN. The price of US currency fell to 3.11 PLN. This time we witnessed more verbal interventions from top officials threatened by the złoty's surge and its impact on growth outlook and euro adoption.
This eased the złoty's rally but not for long. Prime Minister Marek Belka called for prompt talks with the central bank. According to Belka, current levels are potentially worrisome. However, the central bank governor Leszek Balcerowicz sees no need for currency market intervention and plays down possible action in the near term, though according to the bank's quarterly inflation projection report, the złoty is overvalued in relation to fundamentals. The governor's stand is supported by the Finance Ministry.
Slow exports
The central bank deputy governor Krzysztof Rybiński reminded us that the bank must be prepared for interventions during its stay in the ERM-2 regime. The bank also announced that the current account deficit amounted to E224 million in September from a revised E324 million in August, mainly due to a slowdown in export dynamics. The złoty was almost unmoved by the data. Coming days should bring more verbal interventions and continuing growth in the złoty.
On the international markets the US currency was softer against major currencies despite positive US economic data. The euro peaked at an all-time high 1.3380. The British pound rose over the past week to 1.9435, mainly due to renewed rate hike speculation in 2005. The greenback also hit 5-year lows versus the yen. The US ISM index (shows business conditions in the manufacturing sector) rose to 57.8 percent in November form 56.8 percent in October, the first growth in four months. Both personal income and consumption rose more then expected. The Fed's Beige Book reported continued US growth. Finally, GDP grew at 3.9 percent in third quarter. Nevertheless the dollar continued its downward trend due to concerns over the US 'twin deficit'-budget and trade.
Yen to the rescue?
There seem to be no signs of a halt to this bearish sentiment. Investors are threatened by possible (some say inevitable) currency interventions and are closely watching any concerns voiced by the monetary authorities. Japan's Vice Finance Minister Hiroshi Watanabe suggested there is room for harmonized action on the currency market between Europe and Japan. Market participants played down this information and continued selling the dollar. On Thursday the European Central Bank decided to keep its key interest rate unchanged at 2 percent. Jean-Claude Trichet, the ECB's chief, did not back up Watanabe's idea of joint market intervention to curb the dollar's weakness.
The strong euro is being blamed for fading economic recovery. The same day the greenback rebounded but failed to gain more due to surprisingly soft November US job data.
In the coming months calls are likely to increase on the US to reduce its budget and trade deficit and put pressure on China to allow a more flexible exchange rate. However, the dollar is unlikely to rise significantly and break 1.30 by the end of this year.
Krzysztof Rup, Warsaw Investment Group (WGI)
