Trading the Polish Zloty: What You Should Know
Trading the Polish Zloty against the US dollar, the British pound and the euro could be an option for consideration when traders design their strategies. You might ask why? Not so many years ago the Polish Zloty and the Polish economy were among the weakest in Europe. However, in the last few years, Poland has risen and has gained strength from foreign direct investments in the country.
As a result, the Polish currency’s value has climbed and has become even more popular among traders who are into trading European currencies. This blog will share some valuable information and insights regarding the Polish Zloty that could be useful to beginner traders.
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The Polish Economy, the Zloty and the Central Bank of Poland
The Polish economy has grown significantly in the last two decades, overpassing other European economies and becoming the sixth largest economy in the European Union (EU) with GDP per capita being above 70% of the EU average (in terms of purchasing power parity).
According to a survey published by the World Bank in April 2023, Poland’s economic growth decelerated to 4.9% in 2022. World Bank analysts suggest that the GDP’s growth will likely decelerate to 0.7% in 2023 due to high inflation, the influx and support of refugees while others stress the lack of investments in R&D which amounts to less than 1.5% of GDP which is lower than the EU average.
The Organisation for Economic Co-Operation and Development (OECD) is optimistic regarding the future of the Polish economy suggesting in a report that “high energy prices, weak domestic demand and global uncertainty mean GDP growth is expected to remain weak through the first half of 2023. However, the Survey projects growth to recover to 2.4% in 2024, while inflation is projected to peak in early 2023 before falling to 3.5% by the end of 2024.”
Narodowy Bank Polski (NBP) is the central bank of the Republic of Poland. Poland’s central bank is responsible for the stability of the Zloty while developing and implementing the monetary policy strategy and the annual monetary policy guidelines.
In April 1924, the zloty was introduced into circulation, replacing the Polish mark whose value had been destroyed by inflation. The Polish currency is the 21st most traded one in the global foreign exchange market, according to the Triennial Central Bank Survey published by the Bank of International Settlements (BIS).
The Polish Zloty Performance
As seen on the 5-year monthly chart below, the Polish Zloty performed well against the US dollar, hitting a 3-year low on May 1st 2021 when it traded at 3.65 PLN against the US currency.
Date Range: May 1st 2018 – 20th July 2023. Date Captured: July 20th 2023. Past Performance is not an indicator of future results.
However, the next 16 months proved to be difficult for the Zloty as it lost ground against its US counterpart. At the beginning of September 2022, the Polish currency recorded a multi-year low trading at 4.94 against the dollar.
Date Range: April 25th 2023 – 20th July 2023. Date Captured: July 20th 2023. Past Performance is not an indicator of future results.
Ever since then, the Polish Zloty has regained its strength and “continues to benefit from a mix of current account surplus, more FX sales on the market by the Ministry of Finance, inflows from Foreign Direct Investment and portfolio capital," according to ING economists.
What Do Analysts Think About the Polish Zloty and the Polish Economy
On July 7th, the National Bank of Poland (NBP) announced its decision to keep interest rates unchanged. Headline inflation in Poland stood at 11.5% in June on an annualised basis, statistics office data showed, down from a peak of 18.4% in February.
A Reuters report on July 18th showed that two of the NBP’s governing council members suggest monetary policy easing could be on the way. Monetary Policy Council (MPC) member Gabriela Maslowska mentioned that “if for example in September or October the rate setters judge that incoming data is compelling enough, that it's worth making decision about a first cut ahead of the projection, then I believe it would be comprehensible.”
Commerzbank’s analysts wrote in a report published on July 14th that “we forecast the Euro to remain strong through 2023 but weaken once again during 2024. Given Zloty’s high-beta relationship to the Euro, we see EUR/PLN rising again towards 4.75 as inflation disappoints once again in 2024.” They also wrote that “our base case remains that inflation will moderate noticeably over the coming quarters, but not converge fully to target, hence we see 2024 as a potential Zloty-negative period.”
ING analysts suggested in a report published on July 20th that continued disinflation in Poland could support prompt central bank easing. The Dutch bank’s economists noted that “the Council officially ended the interest rate hike cycle in July, and the market is gambling on a rapid and significant easing of monetary policy. Our baseline scenario assumes two 25bp interest rate cuts before the end of this year (most likely in September and October). At the same time, with the inflation profile presented by the NBP in its July projection, the space for rate cuts is clearly lower than the market is currently pricing in.”
Trading the Polish Zloty and Risk Management
The Polish Zloty is the currency of one of the largest developing markets in the world, therefore it would make sense if traders sought to add it to their portfolio. The underlying strength of the Polish economy may attract investors who’d like to benefit by any potential emergence of the Polish Zloty. However, trading forex always involves risk and lack of preparation may lead to loss of valuable funds.
Beginner traders should be especially careful when building their trading strategies because they lack experience and perhaps the necessary trading knowledge to judge which would be the right course of action. To evade the danger of losing funds, beginner traders should study the various aspects of trading and, of course, how to use risk management tools.
There is a broad range of online educational materials that could help beginner traders power up their trading knowledge. Webinars, articles, tutorials and videos prepared by trading experts are available to help beginner traders learn how to use risk management tools. These tools could make a difference when markets move against a trader’s plan by minimising losses.
Experienced traders suggest that beginner traders should study hard before embarking on this new experience. Don’t miss out on the opportunity to secure your plans as much as you can by using the right risk management tools.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
