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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)

28 Jun 2022 9:08|Bartosz Sawicki

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.

Currency rates are looking for a motive for the new quarter, euro, dollar and franc rates are slightly decreasing, source: Conotoxia

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.

28 Jun 2022 9:08|Bartosz Sawicki

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

25 May 2022 11:02

Currencies influenced by macro data, the pound extremely unstable, the dollar at the limits of its weakness? (Daily analysis 25.05.2022)

20 May 2022 10:57

Breakthrough on the franc market (Daily analysis 20.05.2022)

19 May 2022 9:11

Exchange rates overshadowed by panic in the stock market; dollar gains again (Daily analysis 19.05.2022)

10 May 2022 9:11

The US dollar surges as global equity markets sink (Daily analysis 10.05.2022)

Attractive exchange rates of 28 currencies

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