Zloty Drops on Bets Rally Spurred by Fed Overdone: Warsaw Mover

Poland’s zloty, the best performing emerging-market currency this quarter, weakened for the second day on bets gains sparked by the Federal Reserve’s surprise decision to maintain monetary stimulus went too far.

The currency dropped 0.6 percent to 4.2273 against the euro at 5:26 p.m. in Warsaw, adding to a 0.8 percent loss yesterday. The zloty appreciated 1.2 percent to a four-month high on Sept. 18, the day U.S. policy makers said they wanted more evidence of an economic recovery before paring their $85 billion-a-month stimulus program.

“The rally after the Fed was overdone,” Christian Lawrence, a London-based FX strategist at Rabobank International, said by e-mail today. “Tapering has not been canceled, merely delayed.” Lawrence expects the zloty to weaken to 4.25 against the euro over the coming month, implying a 0.6 depreciation from the current price.

The Fed’s decision triggered a 0.7 percent rally yesterday in a group of 20 of the most-traded emerging-market currencies, taking the 14-day relative strength index to 73. That’s three points above the threshold which signals to some analysts a security is poised to decline. The group of currencies fell 0.5 percent today, with the RSI dropping to 66.

Bearish Trend

The zloty has appreciated 2.3 percent this quarter, the most among 24 emerging-market currencies monitored by Bloomberg. Yields on Poland’s 10-year government bonds rose from a five-week low today, increasing four basis points, or 0.04 percentage point, to 4.34 percent.

The drop in yields after the Fed’s decision “has proved only temporary,” Pawel Radwanski, a fixed-income analyst at Raiffeisen Polbank SA in Warsaw, said in a weekly note. With tapering still ahead, “long-term investors may be unwilling to buy Polish debt, which has probably started a mild, long-term bearish trend,” he said.

Voters in Germany, Poland’s main trading partner, are preparing to choose a government to lead Europe’s largest economy at a federal election on Sept. 22. The outcome of the election is a “fulcrum point” for the euro for the next two years, according to Justin Urquhart Stewart, who helps oversee about $6.8 billion at Seven Investment Management in London.

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