Currency exchange rates close to a double breakthrough; the EUR/PLN rate breaches 4.70, and the EUR/USD above parity (Daily analysis 12.09.2022)

The EUR/USD pair is close to 1.01. The EUR/PLN exchange rate is slipping below 4.70. A definitive breach of the mentioned ceilings by both currency pairs would open up space for the zloty to continue its strengthening and for the battered euro to make up for the losses incurred against the main currencies. Inflation data, particularly Wednesday's US price pressure readings, will be key for investors this week.

Conotoxia's euro exchange rate forecasts consistently assume that EUR/PLN will approach 4.60 at the end of the quarter. Although there may not be enough time for such a scenario to materialise, we still view the zloty's prospects in a moderately positive light. Although not convincing so far, the euro's drop below 4.70 PLN paves the way for a decline towards 4.65 PLN, i.e. the summer lows of EUR/PLN and the average exchange rate value this year. Volatility in the stock market has dropped noticeably, but the zloty is steadily recovering even though the energy crisis in Europe remains a real threat and the Monetary Policy Council has lost its enthusiasm for raising interest rates. Global equity indexes are rebounding strongly from their lows, and the dollar has stopped appreciating dynamically. In such conditions, there may be a shortage of those willing to play a costly (due to the interest rate differential) game to weaken the Polish currency.

In September, the franc is the strongest of the main currencies, with the EUR/CHF clearly below 1.0. The other extreme is the pound, which has been virtually at its weakest against the dollar since 1985. In the coming weeks, the CHF should maintain its strength; we do not expect the EUR/CHF pair to return above parity any time soon. By contrast, the key for the pound will be whether the Bank of England, in the face of a bleak outlook for the economy, like the Fed or the ECB, decides to tighten. The UK monetary authority's meeting scheduled originally for this Thursday has been postponed due to national mourning, but a series of data of the highest calibre will provide valuable clues. GDP growth in July rebounded weaker than forecast, and tomorrow and the day after will see the publication on the labour market condition and inflation.

In any case, the whole week will be marked by readings of price dynamics. Foremost among these will be the data for the US, which at the last hurdle, could influence the valuation of the Fed's intentions ahead of next week's meeting. Markets have virtually come to terms with a third consecutive 75 basis point move, which will push the cost of money into the 3.00-3.25% range. CPI dynamics most likely peaked in June (at 9.1% year-on-year), and the July decline should be repeated, mainly due to lower fuel prices. After a series of recent statements by Fed members, whose message seemed to remain faithful to the strategy of aggressively suppressing inflation, it is difficult to assume that the reading on Tuesday, scheduled for 2:30 p.m., will change the monetary authorities' stance. Especially since core prices, which recorded their last monthly decline in May 2020, should return above 6.0% after two consecutive readings of 5.9%.