It was the typical up and down ride for the zloty on Friday, only this time the ride up was by far greater in magnitude as the session got off to a flying start with the sentiment buoyed by Thursday’s dovish Fed report. The EUR/PLN pair easily broke through 4.06, something it had been struggling to do all week long before shifting back to range trade in the 4.04 area. Later in the day critical remarks on the fiscal perspectives for CE4 countries by S&P triggered some zloty selling and before the day was over the unit gradually returned to the 4.06 EUR/PLN area, still roughly 0.5% up from the opening against the euro.
Things are nonetheless starting to look somewhat brighter for the zloty, at least in the short run, with the Turkish lira slide accounted for by the Turkey central bank and US interest rate perspectives visibly less discouraging for emerging markets. Technically we could see the EUR/PLN pair temporarily edge higher to 4.0350 and then to 4.0, but regardless of the improving global risk environment domestic issues, mainly fiscal worries as the 2007 budget works intensify, should limit the zloty’s upside potential in the longer term perspective.
(CSOB - Investment research)