Polish Currency Defies Market Trends: Amidst the end of the interest rate hike cycle in the US and the fading impact of Middle Eastern conflicts.
Markets Have Short Memories
The situation in the Middle East quickly fades from the headlines of economic news outlets. On one hand, oil and gold prices remain elevated, but stock markets are rapidly returning to growth. On the other, local stock indices and the currency are still under significant pressure. Since last Friday’s close, the Israeli shekel has lost about 2.5% of its value against the dollar, reflecting the scale of market apprehension. Global markets, however, were much more concerned about a broad escalation of the conflict. The lack of escalation is what’s behind the visible sigh of relief on many stock market charts. This doesn’t mean that the situation in Israel has calmed down. Hostages are still being held, human tragedies continue, and retaliatory actions persist. However, the chances of escalation into a full-scale armed conflict are diminishing, though the scenario still exists.
End of the Cycle in the US
Looking at the futures contracts for interest rates, it seems that the US is coming to the end of its interest rate hike cycle. Just a week ago, the odds for keeping the interest rates at the current level were only marginally higher. 53.3% for maintaining the current rates until the end of the year and 46.7% for an increase presented a very balanced situation. Today, contracts predicting unchanged rates are already at 69%. Given that interest rates already exceed inflation by about 1.5%, this scenario seems very rational. The receding chance of interest rate hikes works against the dollar. As a result, we may finally have the first week in three months where the dollar doesn’t strengthen against the euro.
Unexpected Rally of the Polish Złoty
It appears that we are witnessing a pre-election speculation on the Polish złoty. For the past week, there’s been a trend strengthening the Polish currency, which, despite its momentum, doesn’t seem to have a strong correlation with events. Decreasing interest rates should be weakening the złoty, but this hasn’t happened. The conflict in the Middle East should also typically result in the weakening of emerging market currencies against major global ones. Yet, despite a series of negative triggers, the złoty continues its rally. The euro rate dropped below 4.56 today, whereas just last week it hovered around 4.64 zł. The dollar rate, in the same period, has fallen by an impressive 12 groszy.
Today’s macroeconomic calendar lacks significant readings, but that doesn’t change the fact that the markets have been very active post-weekend.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl and Walutomat.
