Zloty Corrects Recent Rally But Hawkish NBP Risks Are Piling Up

EUR/PLN last trades +105 pips at PLN4.4978, catching a breather after three straight days of losses. POLGBs are mixed across the curve, with belly underperforming.

• The start to the week dampened NBP rate-cut expectations, with multiple local sell-side desks pointing to a reduced risk of policy normalisation by the end of the year. The market continues to price rate cuts by end-2023, albeit to a lesser extent. This narrative gained some more traction after data released yesterday confirmed the stickiness of core CPI inflation, while flash Q1 GDP came in notably stronger than expected. The data were assessed in conjunction with the financial bidding war of major political parties, which is expected to escalate as the election campaign progresses. This confluence of factors is seen opening up scope for further PLN appreciation.
• The RSI is below 30, which is a sign of oversold conditions, but for now any recovery would be considered corrective. Spot EUR/PLN printed a new two-year low of PLN4.4784 before erasing losses, with bulls setting their sights on PLN4.5593, the 20-EMA. Bears see Jun 7, 2021 low of PLN4.4360 as their next target.