Zloty Extends Losses To New Two-Month Lows

The zloty fell to its worst levels in two months, seemingly having discounted the fallout from the October 15 election and the NBP's hawkish pivot. Broader risk aversion and greenback bid coincides with today's upswing in EUR/PLN, which comes on the heels of a breach of the pair's 50-EMA, a key layer of technical resistance. The next bullish target is provided by 4.4096, the low print of Oct 17. Conversely, bears look for losses towards Jan 9 low of 4.3309. The pair sits at 4.3945, up 256 pips on the session as we type.

• ING write this morning that closing long positions in CEE assets continues, with EUR/PLN levels becoming "quite attractive", hence they expect a limited zloty appreciation in the coming week or two. They add that the PLN is backed by strong fundamentals, which create potential for further strengthening over the medium term. Meanwhile, Millennium Bank believe that 4Q2023 saw a combination of PLN-positive factors, but the currency has now run out of this fuel and if EUR/PLN breaks above 4.37, it could attack the 4.40 barrier. Still, strong fundamentals should protect the zloty from excessive depreciation.
• POLGB curve runs steeper, with yields last seen 2.6-6.0bp higher. FRA contracts consolidate yesterday's gains. The WIG20 Index has shed 0.8% this morning, probing the water below 2,200 for the first time since November 27.
• Heightened political risk may be applying some pressure to the zloty, with parliament resuming the debate on the 2024 budget in the atmosphere of elevated tensions.
• The NBP will release core CPI data later today. Local sell-side desks expect it to print at +6.8%-6.9% Y/Y.