The Zloty Loses its Slot

Please no laughing at the back of the class, the Polish currency, the zloty, is apparently falling out of favour with investors and speculators. Are you thinking what I’m thinking, that it’s a shame they didn’t ditch their sovereign currency in 2002 and join the euro?

Trading humour can be so cruel. The zloty is down 16 percent against the dollar and 9.9 percent versus the euro this quarter as the worst performer amongst the European currencies. “The zloty was not so long ago the darling of Europe, Middle East and Africa regions but these days are gone,” Benoit Anne, the head of global emerging-market strategy at Societe Generale SA in London, said in a phone interview with Bloomberg, “It used to be a very strong fundamental story and you don’t have it anymore.”

Poland’s was the only European Union economy to avoid recession after the global credit crisis in 2008 caused record purchases of government’s bonds. The economy expanded an average 4.4 percent a year since 2007, compared with 0.1 percent in the EU. However, that artificial ‘growth’ came at an obvious price; Poland’s budget deficit has more than quadrupled since 2007 to 7.9 percent of GDP last year, the widest gap since at least 1996, according to data compiled by Bloomberg.

Contagion thoughts took a twist in an unfamiliar direction yesterday, with news that Danish banks are experiencing their own crisis and it’s deepening due to the new government’s plans to impose taxes on lenders, this threatens to deplete capital at a time when most of the country’s banks have no access to funding markets.

“The banks are under severe stress,” said Jesper Rangvid, professor of finance at Copenhagen Business School, in an interview with Bloomberg. Imposing extra taxes on the country’s banks “definitely does not contribute to banking stability.”

Stocks rallied yesterday, rebounding from last week’s slump. Commodities reversed losses and the Dollar Index declined. The Standard & Poor’s 500 Index jumped 2.3 percent to close at 1,162.95 at 4 p.m. in New York. The S&P 500 is down circa 12 percent since the end of June, heading for its worst quarterly performance since 2008. Ten-year U.S. Treasury note yields added six basis points to 1.90 percent, rising from a close to record low. The Dollar Index lost 0.5 percent, while the euro fell against 12 of 16 major peers. Financial shares ranked among the session’s best performers, with the KBW Bank Index up 5.3 percent. Dow component JPMorgan Chase & Co advanced 7 percent to $31.65 while Citigroup Inc gained 7 percent to $26.72.

Source: FX Central Clearing Ltd. (FXCC – BLOG)