The zloty is up vs most of its significant crosses (CHF, EUR, USD) for the second day in a row — largely down to Wednesday’s widely called-for intervention in the forex markets by the Polish finance ministry.
The Polish move was supported by the Czech central bank ,which said on Wednesday it might hike interest rates to prevent further deterioration in the koruna, and by in Hungary Prime Minister Ference Gyurcsany who called for “non-conventional” fx interventions. Consequently most of the EMEA currencies have extended rallies over the past 24 hours. Even the Russian rouble is firmer against the USD.
Panic stations over then? Well, not completely. As TD Securities EM strategist Bartosz Pawlowski points out on Thursday:
We do not believe that yesterday’s measures by themselves are capable of reversing the negative sentiment towards the region. However, they have clearly raised risks connected to holding speculative positions against the region’s currencies and therefore we could see a few days of profit taking. Given that Poland was the only country that actually bought its own currency on the market, we think that the PLN will outperform its peers. Note, however, that today’s industrial production data for January (1pm GMT) is likely to be very poor showing a double-digit annual drop.
But, it’s clearly enough of a change in sentiment to have convinced Goldman Sachs to close its short positions in Polish zloty and the Czech koruna. From Bloomberg:
“We have long had the view that CEE3 currencies will likely underperform on the basis of unsustainable external imbalances,” London-based analysts Thomas Stolper and Themos Fiotakis at Goldman Sachs wrote in a client note. “But after the rapid depreciation in recent weeks and months we now see several factors that make short positions in Eastern European currencies less of a one-way bet.”
Of course, it will take much more than a 2 per cent strengthening to bring relief to Eastern European corporates suffering exposure on unhedged foreign-currency denominated loans and/or speculative fx option positions.
Related links:
UBS: No Eastern European meltdown – FT Alphaville
The art of selling toxic FX options – FT Alphaville