The main factors affecting polish currency last week were, the decision of ECB about remaining the interest rates at the same level and still uncertain political situation in Poland.

The EURPLN deepened loses from the last week attaining even 4zloty. However, the attempt to attack psychological height failed. But still, in the short term, there is a risk that the exchange rate will advance. Nonetheless, longer prospect ought to be favorable and one should not count on significant weakness.

Polish economy still is firm, therefore we can expect further dynamic growth. This week we haven’t got known many essential macroeconomic data, however some factors make us think that foreign investors didn’t leave our country. It was visible on Wednesday, after the issue of two-year obligations, which enjoyed big interest. The supply, like for current situation, was high because Ministry decided to sell papers worth 3,6 bln. The demand three times outstripped the supply and profitability was like in the market.

It is also worth mentioning about polish stock exchange, where the biggest companies leaped to an all time high and on Friday there was an exceptionally high turnover.

A threat is still seen from the politics side. On Thursday there was a voting about dissolving Seym. According to expectations, the motion wasn’t put to the vote. Law and Justice gained just a good justification to go to coalition with Self-defence, without which PIS is not able to create stable majority.

We could think about the possible impact of this exotic coalition on our currency, however we should remember that it has been already included in the quotations.

Also a great unknown is reaction of Finance Minister Zyta Gilowska on the coalition with Self-Defence. Media speculated that she won’t find her feet in such an alliance. Her quitting can pose a threat for the market because Gilowska is considered by the investors as a guardian of stability of public finance.

Thus, all these uncertainties point out that PLN won’t strengthen in the coming week. However, good economic situation as well as still increasing engagement of foreign investors makes us think that there will be better times for the importers again. Exporters should get ready for hedging their exchange positions.

A lot will depend on planned for this week publications of macroeconomic data as follows: Consumer Price Index and Corporate Wage Index. Higher outcomes will suggest, that the last concern of Monetary Policy Council for the inflation coming back to inflation target are justified and possible reductions must be put off to further period. Currently the FRA market doesn’t count on cuts, even estimates higher probability of a rise in the nearest future. Thus, higher inflation won’t help zloty.

PLN was also affected by the situation in the international market, where the main event was the decision of ECB about remaining interest rates on the same level of 2,5%. This scenario was highly expected and therefore it didn’t cause any moves. Surprising was commentary of President of ECB, Trichet, who occurred to be less hawky than the market expected. The statement cooled down the investors who thought that the next increase of interest rates will be on May and till the end of the year the interest rate will rise to 3,25%. At the moment the market expects the nearest increase in June and till the end of the year we will obtain level of 3%. However, how Trichet stressed, further monetary policy will depend on current data and prices of energy. Just after the statement, European currency started significantly loosing in value and in short time EURUSD fell from 1,23 to 1,22.

Nevertheless, we expect that sale off of European currency won’t be continued and expectations about rises of interest rates are only transferred in time. We draw such conclusion also on basis macroeconomic data revealed in Euro-Zone and prospect of further growth. Every factor, publicized lest week, had a good impact on euro, outstripping market expectations. PMI in the industry rose to 56,1 the highest level since 5 years ( 55 was expected and every value above 50 means improvement of situation). Unemployment fell to 8,2%, whereas 8,3% was expected. Retail sale jumped in February by 0,5%, while 0% was expected.

Certainly EURUSD quotations were also affected by information from the USA. The market expected publications from the labor market, what was stressed during last statement of President of FED Ben Bernanke. He suggested that fall of unemployment will cause stronger wages pressure and connected with that bigger inflation expectations. However, the data from Friday don’t bring about concerns. Employment amounted to 211 000, while 198 000 was expected, but for balance the data from last month were reviewed downward from 243 000 to 225 000.

I the coming week we can expect considerably smaller variability. Easter is coming, therefore American market will be closed. However, it doesn’t mean that nothing will happen. As far as macroeconomic data are concerned it is worth paying attention to foreign trade balance, retail sale and industry production.

We expect that in the coming period European currency will be still strong, what can entail further advance of EURUSD and at the same time translate onto drop of quotations of USDPLN.

Tomasz Porada
FMCM