Trading the Polish Zloty: What to Know

Trading the Polish Zloty against the US Dollar, the British Pound and the Euro could be an option for consideration when traders design their strategies. You might ask why? Not so many years ago the Polish zloty and the Polish economy were among the weakest in Europe. However, in recent years, Poland has risen and gained strength from foreign direct investments in the country.

As a result, the value of the Polish currency climbed and became even more popular among traders who trade European currencies. This blog will share some valuable information and insights about the Polish Zloty that could be useful to beginning traders.

The Polish Economy, the Zloty and the Central Bank of Poland

The Polish economy has grown significantly in the last two decades, surpassing other European economies and becoming the sixth largest economy in the European Union (EU) with a GDP per capita above 70% of the EU average (according to purchasing power parity).

According to a survey published by the World Bank in April 2023, Poland’s economic growth has slowed down to 4.9% in 2022. World Bank analysts suggest that GDP growth is likely to decelerate to 0.7% in 2023 due to high inflation, the influx and support of refugees while others emphasize the lack of investments in R&D which amounts to less than 1.5% of GDP which is lower than the EU average.

The Organization for Economic Cooperation and Development (OECD) is optimistic about the future of the Polish economy suggesting in a report that “high energy prices, weak domestic demand and global uncertainty mean that GDP growth is expected to remain weak during the first half of 2023. However, the Survey projects growth to recover to 2.4% in 2024, while inflation is forecast to peak in early 2023 before falling to 3.5% by the end of 2024.”

Narodowy Bank Polski (NBP) is the central bank of the Republic of Poland. The central bank of Poland is responsible for the stability of the Zloty while developing and implementing the monetary policy strategy and the annual monetary policy guidelines.

In April 1924, the zloty was introduced into circulation, replacing the Polish mark whose value was destroyed by inflation. The Polish currency is the 21st most traded in the global currency market, according to the Triennial Central Bank Survey published by the Bank of International Settlements (BIS).

The Polish Zloty Presentation

As seen on the 5-year monthly chart below, the Polish Zloty performed well against the US dollar, hitting a 3-year low on May 1, 2021 when it traded at PLN 3.65 against the US currency.

However, the next 16 months proved to be difficult for the Zloty as it lost ground against its American counterpart.. At the beginning of September 2022, the Polish currency registered a multi-year low trading at 4.94 against the dollar.

Since then, the Polish Zloty has regained its strength and “continues to benefit from a mix of current account surplus, more FX sales on the market by the Ministry of Finance, inflows of Foreign Direct Investment and portfolio capital,” according to ING economists.

What analysts think about the Polish Zloty and the Polish economy

On July 7, the National Bank of Poland (NBP) announced its decision to keep interest rates unchanged. Headline inflation in Poland stood at 11.5% in June on an annual basis, statistics office data showed, down from a peak of 18.4% in February.

A Reuters report on July 18 showed that two of the NBP’s governing council members suggest that monetary policy easing could be on the way. Gabriela Maslowska, a member of the Monetary Policy Council (MPC), mentioned that “if, for example, in September or October the raters judge that the incoming data are sufficiently convincing that it is worth deciding on a first cut before the projection, then I believe it would be understandable.”

Commerzbank analysts wrote in a report published on July 14 that “we expect the Euro to remain strong until 2023 but weaken again during 2024. Given the high-beta relationship of the Zloty to the Euro, we see EUR/PLN rising again to 4.75 as inflation will disappoint again in 2024.” They also wrote that “our base case remains that inflation will moderate markedly over the coming quarters, but will not fully converge to target, which is why we see 2024 as a possible Zloty negative period.”

ING analysts suggested in a report published on July 20 that continued disinflation in Poland could support rapid easing by the central bank. The Dutch bank’s economists noted that “the Council officially ended the interest rate cycle in July, and the market is betting on a rapid and significant easing of monetary policy. Our base scenario assumes two 25bp interest rate hikes before the end of this year (most likely in September and October). At the same time, with the inflation profile presented by the NBP in its July projection, the space for rate cuts is clearly lower than the market currently estimates.”

Trading the Polish Zloty and Risk Management

The Polish Zloty is the currency of one of the largest emerging markets in the world, so it would make sense for traders to look to add it to their portfolio. The underlying strength of the Polish economy may attract investors who would like to benefit from any possible emergence of the Polish zloty. However, forex trading always involves risk and lack of preparation can lead to loss of valuable funds.

Beginner traders should be especially careful when building their trading strategies because they lack experience and perhaps the necessary trading knowledge to judge what would be the right course of action. To avoid the danger of losing money, beginning traders should study the various aspects of trading and, of course, how to use risk management tools.

There is a wide range of online educational materials that could help novice traders strengthen their trading knowledge. Webinars, articles, tutorials, and videos prepared by trading experts are available to help beginning traders learn how to use risk management tools. These tools could make a difference when markets move against a trader’s plan by minimizing losses.

Experienced traders suggest that novice traders should study hard before embarking on this new experience. Don’t miss the opportunity to secure your plans as much as possible by using the right risk management tools.

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This material does not contain and should not be considered as containing investment advice, investment recommendations, an offer or solicitation for any transactions in financial instruments. Please note that such business analysis is not a reliable indicator of any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks involved.