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13.11.2009 - Weekly Currency Report: Złoty the strongest since mid-September

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Date: 2009-11-13 18:40

Stock markets regained ground and attacked this year’s highs but this past week currencies reacted also to other factors. Last weekend on the G20 meeting, the International Monetary Fund (IMF) stated that the dollar is overvalued, at the same time confirming that the American currency is still the main funding currency for carry trade transactions (those in which we borrow “cheap” currency, buy “expensive” currency and we invest it in stocks).


The EUR/USD reacted to the news advancing to $1.5048, close to this year’s high (1.5063). During the second part of the week stock markets declined and so did the EUR/USD finishing the week close to the level it started - $1.4880.

The Złoty, on the other hand, kept appreciating throughout the course of the whole week. Decreasing risk aversion (during the first part of the week) due to increasing stock markets was definitely helping emerging markets currencies like the Czech Crown, Hungarian Forint and Polish Złoty. When equities began its corrective movement the Złoty kept gaining. Probably investors decided that local currencies, especially the Złoty, are undervalued to other emerging currencies like Brazilian real. At the same time, the big Swiss investment bank, UBS, provided its forecast that the Złoty is heading towards the zł.4.0 level against the Euro. The news pushed the EUR/PLN towards its lowest since mid-September: zł.4.1015.


Adam Narczewski