The Polish zloty remained quite volatile on Wednesday. Just after the opening at the levels of 3.8840 EUR/PLN and 3.1281 USD/PLN the currency started loosing ground as investors fully discounted the strong Consumer Confidence data in the US from the day before, that led to global repositioning from emerging to core markets. Vigorous retail sales growth that amounted to 10.1% y/y and was slightly above the market consensus of 9.2% proves that consumption growth in 1Q should inch up to around 4.0% y/y. Moreover, an increase in sales growth was recorded in almost all product categories except foodstuff and cars. Hence, we have upgraded our GDP growth forecast in 1Q to 5.2% y/y and for the whole year to 5.0% y/y. Till the press conference after the MPC meeting the zloty hovered around 3.8850 EUR/PLN and even the strong durable good orders in the US had little impact on its behavior. The communiqué after the meeting, basically unchanged since January, gently improved the bond market sentiment and spurred some fresh demand for the zloty just before the closing at 3.88 EUR/PLN.
Regarding today’s trading: with nothing on the domestic calendar and the long holiday weekend just ahead the zloty should stick to the current 3.85-3.90 range. The key driver of market sentiment will be an outcome of the coalitions talks between conservatives and populists. We believe that they will end up with a kind of compromise either today or tomorrow and the new government will be have majority support in the parliament.
(CSOB - Investment research)