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Zloty Ticks Lower, Local Activity Data Coming Up Tomorrow

PLN

EUR/PLN has edged higher today and last sits at 4.6479 (+76 pips on the day), with the zloty lagging behind its EMEA peers. The local currency remains vulnerable amid a familiar combination of inter-related risks on monetary, fiscal and political fronts. Technically, a break above Sep 12 high/round figure/61.8% retracement of the Sep 2022 - Jul 2023 sell-off at 4.6971/4.7000/4.7072 would signal a resumption of bullish pressure. Bears look for a dip through 4.5951, the low print of Sep 8.

  • In their morning research note, mBank point to the implementation of "multiple regulations intended to bring CPI lower" over the past few weeks. These include energy bill relief measures, free prescriptions for selected age groups, as well as "anomalies" in retail and wholesale fuel markets (petrol is cheapening despite higher oil prices and weaker currency). They believe that as a result of "inflation engineering" CPI may print around +7.0% Y/Y in October instead of +8.6% in an alternative scenario. They note that lower inflation outturns will likely encourage the MPC to keep cutting rates in the near term, which supports their view that monetary loosening will have to be reversed in 2024.
  • PLN/EUR 1-year basis swap has edged lower today, ticking away from fresh multi-month highs printed last week. The elevated cost of swapping EUR for PLN may provide a buffer against more pronounced zloty depreciation amid expectations of continued NBP rate cuts. Government officials have recently hinted that they could reduce liquidity to shore up the zloty if needed. They deployed this tool last October, when 1-year swaps topped 280bp. Citi Handlowy economists suggest that besides verbal interventions, the latest upleg in EUR/PLN basis swap could be attributed to a higher risk premium indicated by wider POLGB/IRS spreads.

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