Zloty returns to pre-pandemic exchange rate against euro after EU funds unlocked

On Monday, the Polish zloty strengthened to 4.28 zloty per euro for the first time since February 2020, boosted by fading expectations of interest rate cuts later in the year and optimism over the unblocking of billions in EU funds for Poland.

In recent weeks, the zloty has also been rising strongly against other major currencies, including the US dollar, the Swiss franc and the British pound.

“The zloty is supported by a weak dollar, fading expectations of any NBP [National Bank of Poland] rate cuts this year and the prospect of an inflow of EU funds,” wrote analysts at ING.

Source: stooq.pl

The zloty started to strengthen at the beginning of October and accelerated its gains after the 15 October elections that saw the Law and Justice (PiS) party, which had been in power for the past eight years, lose its majority.

Investors hoped that the change of government would help unblock €137 billion of EU funds frozen amid PiS’s conflict with Brussels over the rule of law.

Two weeks ago, the European Commission announced that it would unblock the funds, arguing that the new Polish government, consisting of a broad coalition of parties from left to centre-right and led by Donald Tusk, had sufficiently demonstrated its commitment to restoring the rule of law.

Markets welcomed the decision, leading to further zloty strengthening.

The EU will unblock €137bn in funds it froze over rule-of-law concerns under the former PiS government, announced @vonderleyen on a visit to Warsaw.

She praised the steps taken by @donaldtusk’s new government to restore the independence of the judiciaryhttps://t.co/gxIPdoL5GV

— Notes from Poland 🇵🇱 (@notesfrompoland) February 23, 2024

Yesterday, the currency was further supported by the release of a macroeconomic projection published by the Polish central bank. This document, which is closely watched by analysts and used to forecast NBP policy, showed that the return of inflation to the central bank’s target of 2.5% (+/- one percentage point) might take a few more years.

“Its market consequence was to reduce expectations of interest rate cuts in Poland, which benefited the zloty,” wrote analysts at Millennium, a bank, in their morning note today.

According to Bartosz Sawicki, financial markets analyst of the currency portal Cinkciarz, the zloty may strengthen further in the coming months to the level of 4.25 per euro.

🇵🇱 Złoty zaczyna tydzień od rekordów. Euro jest najtańsze od 4 lat. EURPLN spada o 0,2% i zbliżając się do 4,29 narusza grudniowe minimum. Prognozy fintechu @CinkciarzPL zakładają, że kurs euro w kolejnych miesiącach nieznacznie pogłębi spadki i osunie się do 4,25 zł. #waluty pic.twitter.com/a7UD8vNK7p

— Bartosz Sawicki (@BPSawicki) March 11, 2024

On Monday, the zloty also reached its highest level since late 2021 against the dollar, at 3.91 per dollar, and its highest level since mid-2022 against the Swiss franc, at 4.55 per franc, show data from Stooq, a website aggregating financial information.

On Tuesday, zloty remained slightly below the highs it had hit a day before. The zloty also strengthened against the British pound on Tuesday, reaching 5.01 per pound, its highest level since December last year.

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Main image credit: m. / Unsplash


Alicja Ptak is senior editor at Notes from Poland and a multimedia journalist. She previously worked for Reuters.

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