Volatile week as markets eye US payrolls
The price of the European currency was more stable and fell slightly to 4.05. In the first week of the New Year we witnessed long-awaited, deeper corrective moves on the złoty. The Polish currency eased against the majors as the greenback strengthened and, to some extent, as a result of Finance Minister Mirosław Gronicki's comments suggesting that further fast grow could hurt exports. The drop was more significant against the dollar where the USD/PLN cross jumped to 3.13. The EUR/PLN bounced back to 4.14.
It seems that the eight-month run is over. Market participants are not convinced about which way the market is heading. There is no clear trend and analysts and investors share different opinions. However, we do not expect the złoty to drop sharply. It is supported by strong fundamentals (ministers are predicting unemployment will fall to 14 percent by the end of 2005) and estimated huge revenues from privatization. Nevertheless, the healthy economic outlook may be disturbed by the forthcoming general election and political instability. This would negatively influence the Polish currency. On the other hand we should not be nervous about possible market interventions. The central bank is unwilling to take any direct action on the foreign exchange market. However, analysts already believe the monetary tightening cycle is over and predict a fall of interest rates.
Last year the dollar suffered heavy losses due to widening U.S. twin deficits-trade and budget. In December the EUR/USD peaked at 1.3670. Back then few investors believed the dollar could rebound remarkably. This time they were wrong. The greenback regained some losses but there was nothing fundamental behind this move. The EUR/USD dropped to 1.3150. Some traders claimed it was just a technical correction but most of the market participants expected a bright Friday labor report. Good figures would have boosted expectation of more aggressive monetary tightening by the Federal Reserve. On Friday new jobs came in below expectations, generating some noise on the market-but the greenback survived. In the mean time, minutes released from the Fed's last meeting suggeste that the central bank might accelerate the rise of interest rates. Nevertheless, last week's trend is expected to be short-lived. The market consensus is that the U.S. currency should fall further to correct America's current account deficit.
According to a Reuters's poll, the euro is likely to set new highs this year but the fall of the U.S. currency should be limited due to rising disparity between interest rates in the U.S. and euro zone.
Krzysztof Rup, Warsaw Investment Group (WGI)
It seems that the eight-month run is over. Market participants are not convinced about which way the market is heading. There is no clear trend and analysts and investors share different opinions. However, we do not expect the złoty to drop sharply. It is supported by strong fundamentals (ministers are predicting unemployment will fall to 14 percent by the end of 2005) and estimated huge revenues from privatization. Nevertheless, the healthy economic outlook may be disturbed by the forthcoming general election and political instability. This would negatively influence the Polish currency. On the other hand we should not be nervous about possible market interventions. The central bank is unwilling to take any direct action on the foreign exchange market. However, analysts already believe the monetary tightening cycle is over and predict a fall of interest rates.
Last year the dollar suffered heavy losses due to widening U.S. twin deficits-trade and budget. In December the EUR/USD peaked at 1.3670. Back then few investors believed the dollar could rebound remarkably. This time they were wrong. The greenback regained some losses but there was nothing fundamental behind this move. The EUR/USD dropped to 1.3150. Some traders claimed it was just a technical correction but most of the market participants expected a bright Friday labor report. Good figures would have boosted expectation of more aggressive monetary tightening by the Federal Reserve. On Friday new jobs came in below expectations, generating some noise on the market-but the greenback survived. In the mean time, minutes released from the Fed's last meeting suggeste that the central bank might accelerate the rise of interest rates. Nevertheless, last week's trend is expected to be short-lived. The market consensus is that the U.S. currency should fall further to correct America's current account deficit.
According to a Reuters's poll, the euro is likely to set new highs this year but the fall of the U.S. currency should be limited due to rising disparity between interest rates in the U.S. and euro zone.
Krzysztof Rup, Warsaw Investment Group (WGI)
