Zloty Paces Gains In EMEA Region After Comments From Gov't Official

EUR/PLN has fully retraced yesterday's upswing, reducing its post-NBP gains to around 3%. The rate has come under pressure as Poland effectively deployed verbal intervention in defence of the zloty, with PM's aide signalling that the authorities have the tools to guide the currency towards "optimal levels". MPC's Przemyslaw Litwiniuk subsequently said that the central bank should also take the floor to shore up the currency after its sharp sell-off in reaction to last week's surprising 75bp rate cut. There is room for escalation in FX rhetoric, as the government could pass the baton to higher-level officials, while the central bank could issue official comments (note that Litwiniuk is a dissenter in the MPC and has little influence on the central bank's collective stance).

• Earlier this morning, Santander wrote that "the wave of depreciation of the local currency may have not ended yet" amid the prospect of further rate cuts from the NBP and tighter ECB policy. ING assess that large 2024 borrowing needs are amplifying pressure to the zloty.
• EUR/PLN last deals at 4.6255, down 336 pips on the session, after failing to break above the 4.70 figure yesterday. A move through that level and the 61.8% retracement of the Sep 2022 - Jul 2023 downleg at 4.7072 would suggest that bullish momentum is intact. Bears look for losses through Sep 8 low of 4.5951.
• Poland's current account balance (13:00BST/14:00CEST) will be closely watched later today, alongside US CPI data (13:30BST), with ECB rate decision set to steal the limelight tomorrow. Alior Bank believe that narrowing current account surpluses would suggest that domestic demand is recovering, which would reduce the scope for further NBP rate cuts.