On Monday, Central European currencies edged lower. The zloty led losses as weaker PMI for August had confirmed economic slowdown and spurred further bets on monetary easing. FRA 3x6 has fallen by about 20 basis points (bps) over the past 6 days and now prices in almost two 25 bps cuts in three months horizon. Let us recall that the next meeting of the National Bank of Poland is scheduled for tomorrow. Although a proposal to cut interest rates might be raised at the meeting, we do not expect it to be passed (as was the case during the July’s meeting). As we stated yesterday, we think that the NBP will cut interest rates by 25 bps at its November meeting (11/7/2012).
Regarding the calendar, the market might focus on US ISM figures that will be released later in the session. However, the next risk-event is, apart from the NBP meeting mentioned above, the ECB’s meeting scheduled for Thursday. There is still a possibility that Mario Draghi will fall short of satisfying high market expectations. Until then, the regional currencies might stay close to current levels