Zloty Edges Lower, Poland's CPI Inflation Slows More Than Forecast

The zloty has shown limited reaction to a below-forecast flash reading of June CPI, despite some very light dovish NBP repricing seen in the local FRA space. Post-CPI uptick has helped POLGBs to extend their earlier gains, with yields last seen 2.0-6.3bp lower across the curve.

• When this is being typed, EUR/PLN trades +90 pips at 4.4570 and is testing session highs, chewing into yesterday's losses. Bulls need a move through the 50-EMA at 4.5086 to gain a foothold before seeking further gains. Bears eye Jun 22 low of 4.4195 for initial support, followed by the round figure of 4.4.
• Preliminary CPI data for June showed another larger-than-expected decline in headline inflation, while monthly price change remained at standstill. The outcome will support the case of the dovish wing in the MPC ahead of next week's monetary policy meeting, even as rate cuts are not expected at least until after the summer.
• However, there are questions surrounding the sustainability of recent downside CPI surprises as we enter 2H2023. A few months ago, we cited a Citi note which warned against extrapolating the trend of disinflationary surprises into the second half of the year, drawing attention to neglected technical aspects of the data. In their snap reaction to today's data, the Polish Economic Institute said that price pressures may ease at a slower pace going forward.