Currencies across Europe have taken a hit in the wake of the Brexit vote, with losses averaging 3% by mid-morning on June 24.
The standout loser – putting aside sterling’s plummet to a 31-year low against the dollar – was the Polish zloty, falling nearly 7% shortly after the referendum result was announced early on the morning of June 24.
Poland immediately cancelled a debt auction planned for June 27 in reaction to the losses, while the Czech National Bank scrambled to intervene and maintain its target euro rate of CZK27 per euro. As the chart shows, the Czech koruna and Bulgarian lev, which is pegged to the euro, moved in tandem following the Brexit result, settling at roughly a 2% loss at by mid-morning.
Peter Attard Montalto, executive director and senior emerging markets economist at Nomura International, said he doesn’t expect any rash manoeuvring by the National Bank of Poland to reverse the currency and stock market losses.
“We are approaching into the interesting EUR/PLN zone over 4.50 where intervention probability goes up but I think if trading is orderly it won't happen,” he explained in an emailed note. “Rate cuts could happen on a larger growth shock but I think course of rate stability is still most likely.”
The Turkish lira also suffered heavily, losing up to 4% against the dollar to trade at slightly over TRY2.98 to the dollar.
Stock markets were also hit, with Turkey’s BIST-100 opening 5.02% lower, while Poland’s WIG index dropped 6.37% in morning trade.
Montaldo was quick to point out that it is too early to take any kind of objective view of what the fallout from the Brexit vote could mean for the region. “I don't think you can fade these FX moves yet until we have a better feel of what comes next, which may be some weeks. Ultimately what we are waiting for is the growth impact and offsetting moves between commodity prices and currencies,” he said.
“The latter should be clearer quickly, whilst the former will take some time – first in sentiment and PMIs, then taking a few months to see the momentum into high frequency output numbers.,” he added.