Lower U.S. yields are strengthening the złoty. USD/PLN is falling.
The zloty benefits from a weaker dollar and lower U.S. yields
On Friday morning, EUR/PLN was still close to 4,3690 zł, while USD/PLN fell to 3,8877 zł. For people exchanging money, that meant that 1000 zł could buy about 257 dollars, slightly more than the day before. The difference is small, but it starts to matter with larger amounts.
The zloty was supported by lower yields on U.S. Treasury bonds. The yield on 10-year Treasuries fell by nearly 30 bp over the past few dozen hours, while 2-year notes were down by more than 20 bp. When U.S. yields decline, the dollar usually gives up some of its edge over other currencies.
The EUR/USD pair, the euro-dollar rate, rose to 1,1238. Just on Wednesday, it was nearing 1,11. That shows the dollar weakened not only against the zloty, but also across the broader market.
Analysts at PKO BP note that the U.S. currency came under pressure despite stronger-than-expected data from the U.S., including September retail sales and producer inflation. Lower benchmark bond yields and pared-back expectations for a Fed rate hike as soon as October also helped in the background.
As a result, the zloty has room for further short-term gains. The euro may test 4,36 zł, while the dollar could move into the 3,86-3,88 zł range. For now, however, the market appears to be in a phase of stabilization rather than a sharp turn.
Sources