Zloty Weakens Most in Eastern Europe on Brexit Fallout Concern

  • Polish currency drops most of major emerging markets this week
  • Brexit risks boost ‘anti-European rhetoric’ in eastern Europe

The Polish zloty led declines in eastern European currencies on rising concern Britain’s potential exit from the European Union will hurt the economy of the biggest recipient of subsidies from the 28-nation bloc’s wealthier members.

The currency slid 0.5 percent on Thursday to a three-week low of 4.4418 per euro as of 4:16 p.m. in Warsaw, extending its retreat this week to 1.6 percent, the worst performance for the period among major emerging-market peers tracked by Bloomberg. Hungary’s forint depreciated 0.4 percent and Romania’s leu lost 0.1 percent against the euro.

The yield premium on 10-year Polish bonds increased this month to as much as four-year highs against comparable German debt in largest post-communist EU nation, as poll after poll suggests the Leave campaign in the U.K. is poised to win on June 23. Polish assets have previously been battered as efforts by the Polish government to control state media and overhaul the country’s Constitutional Court have drawn criticism from EU leaders and contributed to Poland’s first-ever credit downgrade in January.

“The main risks are a short-term worsening in sentiment, slower economic growth in the euro area, and stronger anti-European rhetoric, especially in Poland,” analysts led by Helena Horska at the Czech unit of Raiffeisen Bank International AG said in a report. “Looking at the various economic, financial and political linkages with Britain, Poland is the most exposed in the region.”

Investors worldwide moved from stocks and other riskier assets to the safest government bonds as policy makers from Japan to the U.S. warned a vote to leave the EU in a week’s time could hurt the global economy.

The WIG20 Index of shares fell 2.4 percent in Warsaw on Thursday to the lowest since Jan. 27, with 19 of the companies in the index declining. Polish bonds gained for a second day, with the yield on 10-year debt falling 1 basis point to 3.27 percent.

Polish central banker Jerzy Kropiwnicki signaled on Monday that after a vote for Brexit he would tolerate the zloty reaching as low as 5 per euro before intervening.

Before it's here, it's on the Bloomberg Terminal.