Zloty Corrects Wednesday's Rally, Moves On After Fresh Verbal Interventions

Comments from NBP policymakers sent EUR/PLN tumbling Wednesday but the pair struggled to return to the 4.40-4.60 range described by government officials as optimal. The latest round of NBP speak prompted notable adjustments to Polish FRAs, with the spread between 3x6 contracts and 3-Month WIBOR narrowing to around 75bp.

• Santander wrote this morning that "the market is still pricing around 200bp of rate cuts through mid-2024 but the [expected] terminal rate rose to 4.0% from the recently priced 3.5%". They don't rule out further upward pressure to interest rates as they expect the easing cycle to be less aggressive than priced now.
• Verbal interventions by government officials continued as Prime Minister Mateusz Morawiecki told Polsat News last night that he "believes that the zloty will strengthen". He added that until the year-end, officials will try to shape the policy mix in such a way to promote a stronger PLN.
• Poland's August retail sales came in stronger than expected at +3.1% Y/Y (BBG median estimate: +1.6%), with real retail sales down 2.7% Y/Y (versus -4.0% expected).
• EUR/PLN is creeping higher today, correcting yesterday's sell-off. A delayed reaction to yesterday's FOMC decision/rhetoric might be in play, with Polish verbal interventions already digested by the market. The rate sits at 4.6230, 121 pips higher on the day, with bulls targeting the 4.67 area while bears keep an eye on Sep 8 low of 4.5951.