Last week started really gloomy with the news from the British RBS about to lose massive 28 bln GBP. It was followed later by a string of mostly mediocre results and pessimistic announcements like the one from the Microsoft, which plans firing 5000 employees. This set a tone for currency markets, only temporarily relived by a speech from Obama’s Treasury nominee Thimothy Geithner. We saw a quite significant move downwards on the EURUSD, but a real havoc took place on the emerging segment. The zloty lost a whooping 8,3% to the US dollar last week and is already 19% down this year. This is only exceeded by the Hungarian forint, which is down 20,5% this year and followed closely by the the Romanian ron (18%) and the Czech koruna (15%). Interestingly, some emerging markets like Mexico and Brazil have been very calm lately (down 2% and 1% this year respectively) and one needs to mention that a period of huge volatility on emerging markets started from these countries last October. Other currencies also performed better than the ones from the Central Europe.

There is a talk of a major shift in economic perspectives for countries in Central Europe and indeed one needs to notice that these economies will not flourish with the Eurozone contracting. However, this alone cannot definitely explain the weakness of their currencies. We are clearly in a speculative part of this move and therefore some major correction should not be excluded, although it is nearly impossible to point at certain levels that may trigger it. 

Przemysław Kwiecień