Zloty Loses Ground On CPI Miss Which Fuels Dovish NBP Repricing

EUR/PLN has ticked higher after the release of Polish macroeconomic data, albeit with a slight delay. The rate last sits +40 pips at PLN4.5414 after closing above its 20-EMA yesterday. Bulls look for a clearance of May 18 high of PLN4.5547 to confirm that the rate is bottoming out. Conversely, bears continue to eye support from the PLN4.4784/67 area.

• Domestic data stole the limelight this morning, prompting further dovish NBP repricing. Final Q1 GDP growth was revised to -0.3% Y/Y from -0.2%, a rather insignificant correction. More interestingly, flash CPI data showed that headline inflation eased to +13.0% Y/Y in May from 14.7% prior (versus +13.4% expected), with local analysts estimating that core inflation may have cooled to +11.3%-11.6% Y/Y.
• There has been a notable downward shift in Poland's FRA curve after the release of the data, with market participants likely interpreting headline inflation miss coupled with estimates pointing to a surprisingly solid cooling of core inflation as bolstering the dovish wing in the MPC in their hopes for earlier rate cuts. Polish 6x9 FRA contracts briefly touched their worst levels since early April 2022.
• POLGBs have turned bid and last trade 4.2-8.1bp richer across the curve, with 10s outperforming, albeit the entire yield curve has now moved away from its worst levels printed in reaction to the aforementioned data. Note that the Finance Ministry may present its bond supply plan for June at 14:00BST/15:00CEST.
• Local political developments remain under scrutiny after the President approved the creation of a panel to investigate Russian influence in Poland, which is widely seen as targeting the opposition. In addition, the Constitutional Tribunal will hear two cases of high political significance, which will also be a test of its ability to reach quorum.