Zloty On Defensive, Bank Stocks Suffer After EU Court Ruling

EUR/PLN swings higher after a sharp sell-off yesterday, extending its see-saw price action seen over the past few days. Commenting on these erratic moves, Millennium Bank wrote that they came amid heightened FX volatility across the CEE region. Santander flagged potential FX conversions by the state development fund BGK coupled with possible opportunistic exporter demand, which could have driven yesterday's zloty appreciation in a low-liquidity environment.

• When this is being typed, EUR/PLN trades at PLN4.4668, up 164 pips on the session. The immediate reaction to a key court ruling on FX loans was very limited, but may have applied some pressure to the zloty as the session progressed. Technically, the 20-EMA marks initial resistance at PLN4.4912. Bears keep an eye on Jun 12 low of PLN4.4307.
• The CJEU sided with the opinion of its Advocate General and issued a pro-consumer ruling in a case surrounding annulled FX loans. Poland's financial regulator KNF and banking lobby ZBP warned that the verdict will lower banks' capacity to meet the financing needs of households and the wider economy.
• POLGBs trade 3.8-6.5bp cheaper across the curve, with 5s underperforming, after showing little reaction to the CJEU ruling. Banking stocks took a hit, however, with the WIGBANK Index last seen off worst levels but still ~1.1% worse off.
• May CPI inflation was confirmed at +13.0% Y/Y and 0.0% M/M, with local sell-side desks reiterating that an implied decline in core inflation was a positive surprise.