Dollar and franc driven by war fears, ruble and zloty go below in red (Daily analysis 14.02.2022)

The mood observed on the financial markets changed dramatically when the US administration warned that Russia may invade Ukraine in the coming days. As always, in moments of panic in global markets, the dollar and the franc started to appreciate rapidly. Of course, the ruble was massively overvalued, with the deepest discount in almost two years wiping out half of its fortnightly appreciation.

RUB and S&P500 go down, USD, CHF and commodities move up

On Friday evening, Jake Sullivan, the National Security Advisor to the President of the United States, warned at a press conference that the USA and NATO are ready for any scenario and did not exclude the possibility of an invasion of Ukraine by Russian forces during the Olympic Games. Such a stance came as a great surprise to investors since in the previous days' comments made after the meeting of the presidents of France and Russia were taken as good news. The ruble finally gained more than 5% against the main currencies over the past several days and erased most of the downward trend in the quotations of the Russian currency, which began in mid-December.

The market effect of Sullivan's words was a sharp sell-off on stock exchanges, increases in the prices of energy commodities (the price of Brent crude jumped to new long-term highs and exceeded 95 USD per barrel), a sharp depreciation of the ruble, but also the zloty and other currencies perceived as more risky. At the other extreme were the safe havens attracting capital: the dollar, the yen, the franc, and gold, which rose above 1860 USD per ounce for the first time since November. It is worth mentioning that wheat on the Chicago exchange is also growing significantly, as the possible war may disrupt the two key wheat producers.

At the beginning of the week, the market panic is not deepened. Friday's reshuffle is also not being erased. This means that Saturday's phone call between Joe Biden and Vladimir Putin did not defuse tensions or reduce the risk of an invasion. In a similar tone, Sullivan also spoke in an interview with CNN on Sunday, citing the concentration of new forces and increased troop movements near the border with Ukraine. Tuesday's visit to the Kremlin by Olaf Scholz, the German chancellor, could prove particularly significant in the coming days.

Polish zloty: the higher EUR/PLN, the higher the risk of intervention

Successive interest rate increases and tougher rhetoric from the central bank probably prevented more severe increases in exchange rates. They made the zloty somewhat less sensitive to market turbulences, not only related to geopolitical factors but also to, for example, raising interest rates in the USA. This is probably little consolation for the monetary authorities, who counted on lower exchange rates to support the fight against inflation. On top of that, geopolitical tension reaching its zenith threatens further increases in fuel and grain prices, which may further worry the MPC members.

The stronger the pressure on the zloty to weaken, the higher the risk that the monetary authorities will help the Polish currency. After the comments of the President of the NBP made at the end of January and in the first part of February aimed at strengthening the currency, the zloty's appreciation was modest and transitory. This may suggest that this time it will not be just words. At the conference following the MPC meeting, Adam Glapinski's statement that it was being considered that the exchange of EU funds should not be conducted at the central bank but on the market caused a big stir. If the government's currency funds really became a source of additional demand for the zloty, it would be a powerful impulse for its strengthening.

If the euro exchange rate is raised above 4.60 PLN, classical interventions involving the sale of foreign currencies by the central bank cannot be ruled out either. It has been stressed repeatedly that the NBP does not target any specific exchange rate level but rather seeks to smooth out excessive market volatility. Given that the EUR/PLN exchange rate has already risen relative to last week's lows by up to 2%, this criterion can be safely deemed fulfilled if further weakening occurs.