Polish zloty finishes down vs. GBP last week, pars gains this week

The pound weakened against the Polish zloty last week as concerns over the UK’s political situation intensified. The prospect of disastrous results for Labour in the European and local elections prompted six ministerial resignations from Prime Minister Gordon Brown’s cabinet as he struggled to hold onto the party leadership. The local currency rarely benefits from political uncertainty, so disunity in the Labour Party weighed heavily on the pound late last week. The zloty’s gains were also extended after the Polish government announced its intention to lower the country's budget deficit once its economy starts to recover from a slowdown in growth. Poland's Prime Minister Donald Tusk announced last Thursday that he wants to avoid increasing taxes when reviewing the budget plan for 2009, saying he "doesn't expect the increased budget deficit will be too drastic. These are things we would like to avoid." This provided a welcome boost for investor looking at Polish assets and they responded by buying into the zloty. However, so far this week, the pound has recouped some of the losses it endured as the UK’s political situation looks to have stabilised. Strong gains on London equity markets recently have also improved investor sentiment in the UK’s chances of recovery.