Zloty Remains Under Pressure, EUR/PLN Refreshes Cyclical Highs

EUR/PLN has moved through last week's post-NBP highs, testing the 4.65 figure as a result. The rate last deals at 4.6442, up 284 pips on the day, and a sustained break above the 50% retracement of the Sep 2022 - Jul 2023 bear leg/round figure resistance at 4.6483/4.6500 would strengthen the current bullish theme.

• The local yield curve has bull steepened further, with the short-end leading gains. 2-Year/20-Year POLGB spread is the widest since January 2022. This segment was testing inversion territory no more than two months ago. The local FRA curve has also steepened as the market is pricing further NBP cuts in the near term amid suspicions that stubborn inflation could force a pause/slowdown of monetary easing further down the road.
• Goldman Sachs wrote that they expect a "prolonged inflation overshoot" which should be "currency-negative over the medium-term". On the other hand, JP Morgan will be looking for opportunities to go long PLN against the CZK, but "this may require October elections to pass, which should reduce the overly easy bias from both monetary and fiscal policy".
• Development Minister Waldemar Buda said the government continues to weigh an extension of "mortgage holidays" into early 2024 despite the NBP's 75bp rate cut last week, but final decision sits with the Prime Minister. Buda added that he expects the frozen EU recovery funds to unlocked by the end of this year, after the elections.
• The controversial committee to investigate Russian political influence in Poland will convene before the elections, according to one of its newly appointed members. However, the panel will not have enough time to summon any witnesses.