Zloty Continues To Lag Greenback, Trims Losses Versus EUR

The Polish zloty follows a broader sell-off in EMEA FX (vs USD), with the space subject to pressure from overnight risk aversion linked to China's COVID-19 situation. Uncertainty surrounding Poland's talks with the EU on releasing the funds from the National Recovery Plan is likely adding pressure to the PLN.

• Poland's negotiations with Brussels have stalled, with PM Morawiecki facing the twin challenge of meeting EU requirements and appeasing hawkish junior coalition partner. The weekend saw Deputy Justice Minister Kaleta renew his push for a more hardline stance vs the European Commission, days after he openly criticised the PM for his EU policies.
• The WIG20 remains heavy, losing altitude for the past three sessions and again this morning. The index operates 0.68% lower at typing, but is yet to test the prior intraday low.
• Polish government bonds yields are 0.9-3.6bp higher across the curve, with light flattening evident. The spread on 2-year/10-year yields (last ~17.6bp) continues to sink into inverted territory.
• EUR/PLN has pulled back from session highs and last trades +33 pips at PLN4.7023. Topside focus remains on PLN4.7848, the high print of Nov 16. Bears keep an eye on Nov 11/8 lows of PLN4.6720/4.6690.
• USD/PLN is up 452 pips and sits at PLN4.5964 as greenback strength persists. Next resistance is at Nov 16 high of PLN4.6252, downside focus falls on Nov 15 low of PLN4.4760.