The Polish Zloty (PLN) is one of the top-performing European currencies in 2023. It rallied against the US dollar despite the fact that the Federal Reserve of the United States has raised the interest rates in one of the steepest tightening cycles in history.
But the Polish economy is an emerging one. Central banks in emerging markets typically keep the interest rate above the funds rate in the United States to keep their currencies attractive to foreign investors.
Interestingly, the zloty remains resilient despite the PMI data for April dropping well into contractionary territory. For instance, the PMI for domestic manufacturing dropped to 46.6 as new orders worsened – but the zloty did not blink on the news.
The National Bank of Poland keeps interest rates steady
In April, the National Bank of Poland held its benchmark rate at 6.75% – unchanged. It was the seventh consecutive meeting when the central bank did nothing with the interest rate, but if one looks at the past, the interest rate is higher than it was two decades ago.
Inverse head and shoulders pattern keeps the bullish bias intact
The PLN/USD exchange rate fell below 0.225 this year before rebounding. The dip was part of the right shoulder consolidation belonging to a bullish reversal pattern – an inverse head and shoulders.
The measured move, shown in blue, points to more upside, especially if the market is strong enough and trades above 0.2550. Only a drop below 0.2250 would invalidate the bullish scenario.
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