WARSAW: The zloty touched a four-month high against the euro on Tuesday amid expectations Poland will leave interest rates unchanged on Wednesday, preserving its yield advantage over the euro zone's currency.
Other central and eastern European currencies were mostly stable, but the cancellation of Russia's South Stream pipeline project contributed to a weakening of Serbia's dinar, prompting central bank intervention, dealers said.
By 1418 GMT, the zloty traded at 4.165 to the euro, up 0.3 percent on the day on high turnover. The yield on Polish 10-year bonds rose to 2.51 percent.
"After good third-quarter GDP data and yesterday's clearly better-than-expected PMI, the sentiment on the zloty has improved because the risk of (rate) cuts fell," said a Warsaw-based trader.
A purchasing managers' survey (PMI) on Monday showed Polish factory activity grew at its fastest pace in eight months in November, confounding expectations it would slow.
Poland's central bank has said that only a deteriorating outlook for economic growth would prompt more monetary easing, signalling it would look beyond falling consumer prices. Analysts polled last week expected Poland to keep interest rates unchanged throughout 2015.
Poland's benchmark interest rate now stands at 2.00 percent, compared with the euro zone's 0.05 percent.
BZ WBK bank said in a report that if the zloty breaks the 4.16-4.17 level, it would head towards 4.12.
The central bank may then start to worry that the currency was getting too strong, potentially harming exports, analysts said.
"I think that if the zloty were to firm beyond 4.10 to the euro, then it could increase chances for more monetary easing," said Piotr Bielski, senior economist at BZ WBK.
Still, a central bank poll of Polish firms showed in October that they would only start having problems with export price competitiveness if the zloty firmed beyond 4.03 to the euro.
The Hungarian forint shed 0.2 percent on Tuesday, but remained well within its trading range of the past few days.
Budapest-based dealers said they would be watching Poland's rate decision on Wednesday as it might affect Hungarian rate expectations.
Elsewhere, Serbia's central bank intervened at least four times to bolster the dinar, dealers said.
They attributed the dinar's weakness in part to the collapse of the South Stream project, which would have benefitted Serbia's struggling economy.
Comments
Comments are closed for this article.