Zloty Cuts Losses After Sharp Sell-Off, Complex Array Of Factors In Play

The zloty corrects its sharp sell-off, which casts suspicion of potential profit-taking activity, with little on the wires to provide any fundamental justification of this morning's appreciation. If anything, the zloty may have drawn some incremental support from the unveiling of the details of a partial phase-out of energy subsidies from July. While the plan does not seem to contain any major surprises, it does little to push back against bets on prolonged interest-rate stability either.

• EUR/PLN trades at 4.3328, down 334 pips on the session. Bears target support area near Apr 9 low of 4.2527, followed by the psychologically significant 4.25 figure. Bulls look for a renewed rally above Jan 17 high of 4.4124.
• In domestic markets, POLGBs have firmed across the curve, last trading 0.9bp-3.4bp richer across a flattened curve. The WIG20 Index has added 1.2% but struggles to claw back its losses from the previous trading session.
• The scale of zloty depreciation yesterday took many observers off guard as the domestic economic calendar was rather uninspiring. The big themes of (1) an ongoing hawkish correction to the expected Fed rate path and (2) geopolitical concerns surrounding the situation in the Middle East were cited as potential triggers of a PLN sell-off amid the currency's relative sensitivity stemming from its strong showing earlier in the year. Some have also pointed to the steady inflow of downbeat reports from the front lines in Ukraine, as well as comments from government officials re: inbound EU aid. It has been suggested that some of the investments (chiefly the construction of offshore wind farms) could be financed in EUR, without the need to convert a portion of EU funds into PLN.