Currency exchange rates tend to stabilize; the Norwegian krone has its five minutes, and the EUR/USD exchange rate struggles with the 1.06 handle (Daily analysis 28.06.2022)

After last week's turbulent moments on the financial markets, the time for calm has come. The euro exchange rate is slowly losing its volatility and is stable just below PLN 4.70. Investors are waiting for clues that will allow them to decide on the leading theme for trading at the start of the new half-year.

On the scales are: fear of recession limiting the space for rate hikes by central banks, or threats of inflation forcing even more aggressive monetary tightening than the current valuation assumes. As the quarter was very turbulent, the end of June may also bring capital flows in the opposite direction to the most dominant trends. On paper, this factor should favour a weaker dollar, rising stock prices and Treasury bonds.

The zloty should remain stable at the end of the quarter, and we remain moderately optimistic about the prospects for the Polish currency. We believe the EUR/PLN exchange rate should not exceed 4.75 and should fall towards 4.50 with improving investment sentiment. This should be accompanied by a moderate weakening of the USD against the main currencies, pushing USD/PLN away from the recently reached 4.50 mark. The next few dozen hours may be stimulated by the accumulation of international meetings and summits, from G-7, through NATO and OPEC, to talks between the US and Iran. The ECB President's speech at the central bankers' symposium in Sintra, Portugal, should be the most important for the FX quotations. The focus will be on the tool designed to address the risks related to the fragmentation of the European financial system on the verge of monetary policy normalization. Once again, the Old Continent is threatened by the vision of a drastic parting of the ways of individual Treasury bond markets, or to put it simply: a much stronger sell-off of the securities of peripheral economies (Italy, Portugal, Spain) than of the safe, primarily German debt.

In the short term, attention should be paid to the Scandinavian currencies, primarily the Norwegian krone, which has been appreciating recently. The NOK was the weakest of the main currencies this quarter, next to the yen (a correction of the massive strengthening in the first part of the year), but it ends June in good style. Support is provided by last week's Norges Bank interest rate hike, the fourth since September. The 50-bp move pushed the cost of money up to 1.25%, indicating that next year's rate hike will end at 3.0%. The hawkish tone of the monetary authorities is also supported by a more than 5% rebound in crude oil prices: the Brent price is once again rising above 115 USD. However, it may turn out that the spectre of a slowdown in the global economy and a gradual normalization of the situation on the energy commodities market will translate into the fact that the EUR/NOK will not return below 10.00.