The Polish zloty retraced most of this week’s losses building on a fresh spell of weakness from the dollar on Wednesday. Short-covering continued as finance minister Zyta Gilowska said that the zloty could strengthen further due to the expected inflow of EU funds in the years to come. Gilowska pointed out, that as of now the government has no instrument to effectively counter the appreciation pressure. The EU has allocated approximately EUR 90 bn. worth of funding for Poland in the years 2007-2013. This should mean a net inflow of around EUR 60 bn, most of which will be exchanged through the central bank, and as such should basically have no direct impact on the market. Nonetheless, given the extremely healthy fundamentals, FDI inflow and strong stock market performance, we are also fairly positive on the medium term zloty outlook.
Regarding trading today we expect the zloty to lose some ground in reaction to the yesterday’s rate hike in the U.S. as well as following it communiqué that the FED may need to raise rates more to head off inflation pressures.
(CSOB - Investment research)