Polish zloty at one-year low

Polish zloty hit its one-year low and moved above 4.30 EUR/PLN for a while. The Wednesday´s decision of NBP to cut interest rates to new historical lows obviously weighed on the market. Governor Belka signalled that the easing cycle would continue depending on the incoming data. Opened easing options are clearly negative for the Polish currency. In addition, the CEE region does not welcome hints that the Fed might slow its stimulus. Fears of this policy change triggered sell off on regional bond markets. During the last four weeks, Polish bond yields rose by more than 40 bps and their Hungarian counterparts by 90 bps.
 
Yesterday, the sell off could have been further encouraged by a less dovish ECB. On Hungarian and Polish markets, weak bonds clearly exert negative impact on local currencies. In the Czech Republic, the link has been traditionally much weaker, partly due to a lower share of non-resident bondholders operating there. This morning, the Czech industrial output has confirmed stabilisation of the export-oriented sectors. Seasonally adjusted output declined slightly by 0.7 % m/m, while new orders posted solid growth of 5.8 % y/y. Especially new orders in the car industry grew strongly by 7.6 % y/y.