Zloty Recoups Losses Since S&P Cut as Deutsche Bank Advises Buy

  • Currency climbs past 4.40/EUR for first time since rating cut
  • Deutsche sees selloff overdone, recommends buying zloty

Poland’s currency gained for a third day, climbing to the strongest level since before Standard & Poor’s shock sovereign downgrade last month, amid speculation the declines didn’t reflect the strength of the nation’s economy.

The zloty strengthened beyond 4.40 against the euro for the first time since S&P’s Jan. 15 rating cut. Deutsche Bank AG recommended buying the currency with a target of 4.30, saying its undervaluation was at extreme levels and it expected a rebound in line with “positive fundamentals.”

Poland’s first-ever sovereign downgrade last month spurred a selloff that was exacerbated by turmoil in markets worldwide, sending the the zloty to a four-year low. Responding to global market turbulence, the European Central Bank signaled more stimulus may be on the way, the Federal Reserve said it was watching developments closely and the Bank of Japan embraced negative rates for the first time.

“The zloty is getting support from an overall improvement in global markets, driven by the unanimity of central banks from Europe, the U.S. and Japan,” Marcin Turkiewicz, the head of foreign-exchange trading at MBank SA in Warsaw, said by e-mail. “The lack of fresh local political news is also helping out.”

The zloty rose as much as 0.7 percent to 4.3876 against the euro, before trading at 4.3950 at 3:29 p.m. in Warsaw. The currency is still down 3 percent this year.

S&P lowered Poland’s rating one step to the third-lowest investment grade on concern the country’s new leadership is weakening the independence of institutions including the constitutional court and public media.

While S&P focused on policies, it was not particularly negative on fundamentals and the outlook,  Gautam Kalani, a London-based strategist at the bank, wrote in a report today. Valuations are attractive, growth is “strong” and concerns about the budget “seem much more acute than the underlying risks,” he said.

“The S&P downgrade could provide something of a warning signal for the new government, and a period of policy stability is likely,” Kalani said.

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