Zloty Remains In Free Fall, EUR/PLN Approaches 4.70

The zloty is one of the world's worst performers today (third weakest among all 152 currencies tracked by Bloomberg), losing around 1% versus the euro, which inspires a degree of regional contagion. A familiar suite of monetary, fiscal and political factors amount to a negative mix for the PLN, resulting in its continued slide.

• The repercussions of the NBP's 75bp rate cut last week continue to rattle financial markets, with the central bank's rhetoric pointing to a firm dovish bias and ambiguous logic surrounding further steps. Uncertainty is elevated ahead of the high-stakes (the opposition is vowing to hold incumbent officials to account before the State Tribunal) October 15 elections, not only with regards to the outcome itself, but also the implications for monetary and fiscal policy around the polls.
• Santander wrote this morning that the NBP's latest move encouraged market participants to bet against the zloty, including via the PLN/HUF cross. Millennium Bank see no arguments for PLN appreciation other than potential BGK/NBP interventions. The ECB rate decision is seen as a key risk factor for the zloty in the coming days.
• EUR/PLN climbed close to the 4.70 mark today before correcting the move and last sits +427 pips at 4.6807. A clean break above the round figure/61.8% retracement of the Sep 2022 - Jul 2023 sell-off at 4.7000/4.7072 would support the bullish case.
• Poland's July current account balance (Wednesday) and final August CPI (Friday) will grab attention this week, alongside Thursday's ECB monetary policy decision.