Zloty Corrects Recent Advance, Raising Questions Over Further Direction

The latest views of local sell-side analysts on the PLN are summarised below, with EUR/PLN correcting its recent downswing and last changing hands at 4.4483, up 267 pips on the session.

• BGK think that the zloty will return to a greater synchronisation with core markets in the coming days, while EUR/PLN will oscillate around 4.43-4.47.
• ING expect EUR/PLN to test 4.40 in the coming days amid widespread expectations that the new government would defuse tensions with the EU and secure access to frozen funds, while some of these funds will be exchanged into PLN in the market. They note that a generally positive international backdrop (no further escalation in the Middle East, potential for short-term EUR/USD appreciation) lend more support to the zloty.
• Millennium Bank see PLN depreciation this morning as resulting from profit-taking after a spectacular rally at the start to this week.
  
• Pekao believe that the extension of PLN gains yesterday may have been driven by real money flows into the local stock market, which generated demand for the zloty. They note that PLN appreciation opens up more room for NBP rate cuts, albeit the market is not currently pricing this in.
  
• Santander write that the outcome of the elections supported the zloty due to better demand for Polish stocks and bonds from foreign investors. They are not ruling out further PLN appreciation, but see exporter pain threshold of 4.25 as a limit to this dynamic. They outline an optimistic scenario, whereby EUR/PLN could move towards 4.30-4.40 in anticipation of the unfreezing of EU recovery funds earmarked for Poland. However, they see it more likely that initial optimism will fade and EUR/PLN will stabilise around 4.40-4.50 amid the prolonged process of government formation and geopolitical risks coming from the Middle East.