FX Watch – Changes to our conviction views

by: Georgette Boele , Peter de Bruin

140902-Changes-in-our-high-conviction-views.pdf ()
  • We have removed the Polish zloty from our high conviction list and changed our forecasts…
  • …as the Ukraine crisis and the weaker eurozone economy are affecting the Polish economy

Weaker economic outlook and Ukraine crisis hurt PLN

We have removed the Polish zloty long position versus the euro fromf our high conviction list with a total return of 1.25% (because of interest income). The Polish zloty has been on our list versus the euro since 20 November 2013, because we expected the Polish economy to pick up and the central bank to move closer towards monetary tightening in the course of 2015. Moreover, we judged that the Polish zloty would profit from weakness in the euro, especially if domestic growth would remain strong. However, the Ukraine crisis, and the recent weak performance of the eurozone economy risks that the economic outlook may no longer remain as favourable as we initially thought. Indeed, we think that it is likely the central bank will provide more monetary stimulus in the near-term. As a result, more weakness in the Polish zloty is on the cards in our view. We have therefore revised our forecast for EUR/PLN to 4.25 for the end of 2014 (was 4.0) and 4.10 for the end of 2015 (was 3.9).