The Polish Zloty is strongly correlated with the Eurodollar and it weakens when the U.S dollar gains. The EUR/PLN climbed from zł.4.0175 all the way to zł.4.1920 reaching even zł.4.24 during the week. The USD/PLN advanced to zl.3.2360 while the Swiss franc reached a four-year high of zł.2.8855. Foreign investors are not willing to invest their money in local assets and are pulling their money out. News from the U.S are not encouraging either. Retails Sales declined by 2.7% (twice as much analysts expected!) in December (Christmas time) and it was the worst reading of that indicator since 1992. At the same time, the economic situation of Poland is worsening. CPI inflation dropped to 3.3% (lower than expected) and is back in range that is accepted by the Monetary Policy Council (1.5%-3.5%). Decreasing inflation makes it almost a certainty that the MPC will cut interest rates by at least 50 basis points on their next meeting. The outlook is not bright and we can expect that the Zloty might reach even zł.4.5 against the Euro and zł.3.5 against the dollar even in the next couple of weeks. Changes in the downward trend we can expect by the end of the first quarter at the earliest.

Adam Narczewski