Zloty’s Gains in Ukraine Crisis Show Polish Strength: Currencies

The zloty’s resilience during Ukraine’s political crisis shows how far Poland has come in the decade since joining the European Union.

The zloty is the best performer this month among 14 European peers tracked by Bloomberg, gaining 2.3 percent against the euro, the most since July 2012. Russia’s ruble is the worst performer after tumbling to a record last week. Traders lowered their bets on anticipated price swings for the zloty, eastern Europe’s most-traded currency, by the most among 25 major peers this month.

Poland has increased its ties with western Europe, shipping 81 percent of its exports to the EU in 2012, from 77 percent when it joined the trade bloc in 2004. Russia gets 4.3 percent of Poland’s exports and Ukraine less than 3 percent. While Polish unemployment increased last month, the nation is regarded by investors as one of the most stable in the region, with a current-account deficit that has narrowed to the smallest in at least 17 years.

“Poland is in a very comfortable place -- high growth, low inflation and a much more manageable current-account deficit than previous years,” Abbas Ameli-Renani, a London-based strategist at Royal Bank of Scotland Group Plc, said by e-mail yesterday. Its ties with the EU are “a big factor” in supporting the zloty, he said, forecasting the currency would outperform its emerging-market counterparts this year.

Ukraine Standoff

Polish bonds, while slumping one day last week amid the worst of the violence in Ukraine, have also gained this month. The government’s local bonds have returned 1.5 percent since the end of January through yesterday, compared with a 0.9 percent gain in emerging-market debt, according to data compiled by JPMorgan Chase & Co.

Poland’s currency strengthened to a high for the year of 4.1394 per euro last week, just as the three-month standoff between protesters and police in Ukraine came to a head.

The zloty has climbed this month to 4.1556 per euro as of 12:01 p.m. in New York, from 4.2520 on Jan. 31, as emerging-market currencies rebounded from a rout and data showed Poland’s economy is growing at almost twice the pace of Europe as a whole. After Indonesia’s rupiah, the zloty is the best performer this month among 31 major currencies tracked by Bloomberg, against both the euro and dollar.

Traders and analysts expect the zloty to remain strong and stable in months to come.

Zloty Forecasts

Strategists surveyed by Bloomberg expect the zloty to gain more than 2 percent to 4.06 per euro by year-end, according to the median of about 20 forecasts compiled by Bloomberg.

Implied three-month volatility on Poland’s currency fell to 6.24 percent, from a four-month high of 8.63 percent on Jan. 30. The decline in anticipated price swings is bigger than the 1.4 percentage-point drop for Hungary’s forint and the 1 percentage-point slide for the ruble.

Russia’s currency fell on Feb. 19 to an all-time low of 41.81 versus the central bank’s basket of dollars and euros, before rebounding to 41.61 today.

Poland’s increasingly close relationship with the west has also helped the country ride out the crisis in Ukraine, where lawmakers may vote on the formation of a new coalition government this week following the ouster of President Viktor Yanukovych.

Ukraine rejected its own closer ties with the EU earlier this year in favor of retaining Russia’s patronage. The backlash to the popular protests that followed that decision has led to the killing of at least 82 protesters and police.


“Poland is relatively well-insulated from the Ukrainian story,” Ilan Solot, a London-based emerging-markets strategist at the U.S. commercial bank Brown Brothers Harriman & Co., said yesterday by e-mail. “There are no real links aside from sentiment.”

Poland, bordered on the east by the former Soviet republic of Ukraine and on the west by Germany, has seen its economy more than double in size to $490 billion since joining the EU. The former communist nation of 38.5 million people has spent more than $80 billion in EU funds on revamping roads and other infrastructure in the past six years, helping soften the blow from the euro-area’s sovereign-debt crisis.

While Poland is the only one of the EU’s 28 member states to have dodged recession since 2008, its currency suffered alongside other emerging-market assets during last month’s investor flight.

Fed, China

A reduction in the U.S. Federal Reserve’s stimulus program and evidence of a slowdown in China helped push the zloty down 2.3 percent against the euro in January, the biggest drop since May, when it fell 2.7 percent. It still beat the forint and ruble, which weakened more than 4 percent last month, and Turkey’s lira, which slid 3 percent.

The zloty’s “limited and short-lived” decline shows that Poland should no longer be considered a developing economy, Deputy Finance Minister Wojciech Kowalczyk said in a Feb. 18 interview with Bloomberg News.

“I don’t buy the Finance Ministry line,” Peter Attard Montalto, a London-based emerging-markets strategist at Nomura Holdings Inc., said by e-mail yesterday.

Poland’s currency “has been aided by the conservative nature of the central bank as well as a diversified base of foreign holdings,” Attard Montalto said, adding that he had “worries around growth” in the economy.

Unlike developing nations from Turkey to South Africa that have been forced to raise borrowing costs this year to stem declines in their currencies, Poland maintained its main interest rate at a record-low 2.5 percent to keep the economic recovery on track.

‘Dream Situation’

Policy makers enjoy a “dream situation” with inflation “under control” and the economy gathering pace, Narodowy Bank Polski Governor Marek Belka said Feb. 5.

Poland’s gross domestic product rose 2.7 percent in the fourth quarter from a year earlier, after a 1.9 percent gain in the previous three months, the statistics office in Warsaw said Feb. 14. That compares with forecast growth for Europe of 1.48 percent this year, according to economist estimates compiled by Bloomberg.

Poland’s current-account deficit fell to 843 million euros ($1.2 billion) in December, from a revised 957 million euros the previous month, official data showed Feb. 12. The news isn’t all good, with data yesterday showing the unemployment rate rose to 14 percent in January, from 13.4 percent the previous month.

German Market

Germany consumed a quarter of Poland’s exports last year, while Ukraine bought 2.8 percent, making it the nation’s eighth-largest trading partner, behind the Netherlands and before Sweden. Ukraine does have 12 companies listed on the Warsaw Stock Exchange and its NewConnect alternative trading platform, more than any other country.

The strength of Poland’s economy should allow the zloty to ride out any resurgence of investor concern about emerging markets, according to Erste Group Bank AG.

“Strong fundamentals and the recovering economy should help Poland resist overreaction on the foreign-exchange and bond markets in the case of substantial sentiment deterioration,” Erste Group strategists led by Friedrich Mostboeck, the Vienna-based head of research, wrote in a report yesterday.

Net selling of the zloty fell to 23 percent of total trading in the week ending Feb. 23, compared with 49 percent the previous week, according to client transaction data compiled by Credit Agricole SA. Over the past 12 weeks, sales accounted for 7.6 percent of deals, France’s third-largest bank said.

“Markets are becoming better at differentiating emerging markets which have idiosyncratic risk and those who were just going along with the selloff in the last few months,” said Brown Brothers Harriman’s Solot.

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