Zloty Prints Best Levels Since Dec 2020 After Gov't Projects Wider Budget Deficit

EUR/PLN remains on the back foot after a sharp sell-off last Friday. As a reminder, Poland observed a public holiday last Thursday, with many local players staying on the sidelines the following day, which likely sapped PLN liquidity towards the back end of the week. Meanwhile, Friday brought an unexpected adoption of amendments to the 2023 budget bill by the Cabinet. Alongside some tweaks to underlying macroeconomic assumptions involved, the key revision was an increased budget deficit forecast, which some sell-side desks interpreted as supporting the risk of continued fiscal expansion/reduced odds of quicker NBP rate cuts.

• EUR/PLN last deals at PLN44369, down 41 pips on the day, intraday low was PLN4.4307. Last Friday's downswing allowed the pair to break out of a short-term channel, with support from Jun 7, 2021 (PLN4.4360) being pierced thereafter. Losses past Dec 9, 2020 low of PLN4.4175 are needed to reinforce the bearish conditions. Bulls look for a return above breached channel floor at PLN4.4663 before setting their sights on the 20-EMA at PLN4.4988.
• The market has likely shrugged off comments from NBP's Joanna Tyrowicz, who reaffirmed her call for the resumption of the rate-hike cycle and estimated the optimal level of rates to be 7.50%-8.00% (vs. 6.75% currently). She is the most outspoken hawk in the MPC and regularly gets outvoted at monetary policy meetings.
• The next key risk event this week is the announcement of the EU top court's ruling on controversial FX loans, as well as the publication of final May CPI data. Both are scheduled for Thursday.