EUR/PLN to end 2020 at 4.60 and see a modest relief next year to 4.30 – ABN Amro

The złoty is now approaching 4.60 against the euro again. This brings the złoty almost back to the low seen in March. Economists at ABN Amro expect a weak zloty in the near-term and a modest recovery next year. 

Key quotes

“For the coming months, we expect that investors will continue to shy away from the złoty. Investors are concerned about the double dip in the eurozone and the second wave of COVID-19. The eurozone is an important export market for Poland. Poland is also battling this second wave of COVID-19. So there is not much relative strength. It is likely that investors will try to test the previous low in the złoty versus the euro (high in EUR/PLN just above 4.63).”

Next year, we expect a vaccine for COVID-19. As a result the global economy is set to recover. We also expect the Polish economy to recover and even to outperform the economy of the eurozone. Investors will likely focus on the relative growth performance and yield spreads again. All of this is positive for the złoty. Furthermore, we think that the Polish central bank will unlikely cut rates into negative territory. The ECB has a negative deposit rate and when investor sentiment improves, the difference in official rates starts to play a role again. Therefore, this will probably support the złoty. Finally, we expect that Polish real yields will become less negative. Currently they are around -3%. As inflation is expected to decline, real rates will become less negative. This will also give some support to the złoty.”

“Even though we expect the currency to recover next year, it is unlikely that the złoty will rally sharply. The strained political relationship with the EU remains a negative for the złoty. All in all, we expect a weak złoty in the near-term and a modest recovery next year. Our new forecast for the end of this year in EUR/PLN is 4.6 (was 4.4) and end of next year 4.3 (was 4.25).”