Polish zloty weakens, industrial data support euro, dollar fluctuates, franc is on central bank's radar (Daily analysis 24.03.2022)

The zloty is depreciating slightly. The euro exchange rate is at its highest this week but remains under 4.75 PLN and within the range seen in previous days. The dollar is volatile, and the EUR/USD cannot break away from 1.10 in the face of announcements that US rates will be raised sharply in the coming months. At Thursday's meeting, the Swiss central bank complains about the currency's strength and threatens to intervene, but it's not enough to push the EUR/CHF above 1.03.

Polish zloty: EUR/PLN moving in a sideways trend

For several days the euro exchange rate has been locked in a range of around 4.70 PLN. This is also the average level in the last week, which somehow confirms that a short-term balance has been found at this level. So far, the EUR/PLN exchange rate has not seriously threatened either the barrier of 4.65, i.e. last Wednesday's low, or 4.75, i.e. the level that would threaten a further drift towards 4.80.

The market is clearly waiting for new stimuli to push exchange rates lower. The strongest of these would be a positive outcome of the Russia-Ukraine peace talks. Although the invasion continues, investors are still clinging to hope for such an outcome. An announcement of a ceasefire would push the euro exchange rate towards 4.60 PLN - in the area where it was at the time of the Russian attack. A real and official breakthrough in the Polish government's relations with the EU and the unblocking of the National Recovery Plan would also be clearly positive. On this issue, a stand-off persists - repeating optimistic rumours often is not enough to spark optimism.

Let us add that at the same time when the EUR/PLN is not subject to a clear trend, the dollar is also unstable. The EUR/USD is hovering around 1.10, while the mood on Wall Street is also chimerical. Trade participants apparently need time to digest the evident tightening of rhetoric by the Fed confirmed in a series of public speeches.

Euro: economic news better than expected

Obviously, it is too early to assess the impact of the war on the economy reliably, but it will certainly raise the path of inflation and weaken economic growth worldwide. For example, these trends should be much stronger in Europe than in the US. Today's publications of PMI indexes, i.e. leading barometers of sentiment in industry and services, are the first data that reflect the impact of the war in Ukraine on the economic situation in the eurozone.

There was reason to fear that these indexes would come down sharply. The industry was expected to be particularly vulnerable, partly due to additional strains on supply chains already affected by the pandemic. On the other hand, services could be hit hard by rising food and fuel prices. However, it turns out that - for the time being - the gloomy scenarios for the main economies are not materialising. Both indexes for Germany were above expectations (PMI for industry decreased only from 58.4 to 57.6 points), the readings for France do not give reasons to panic. This helps the EUR/USD to remain close to 1.10. If the relative resistance of the euro area economy to the war continues in the coming months, it will be beneficial for the zloty and other currencies of the region. Investors will look for confirmation of today's optimistic symptoms in tomorrow's IFO index reading (10:00 a.m. CET).