The Polish zloty inched higher in early trade on Monday along with other CE4 currencies only to fall back to the pre-opening levels as flows reversed later in the day. Foreign players, who were largely responsible for the move south, ignored comments from deputy FinMin Cezary Mech who warned that election polls in the region may pressure regional assets and remain a potential threat to the zloty.
At the moment we are also somewhat less concerned with the impact of the domestic political outlook on the zloty – in fact, we cannot rule that the formal ruling coalition between the PiS and Samoobrona, once exotic and definitely market negative, will have a soothing effect on the market. In the meantime increased nervousness can be expected with the dissolution motion vote scheduled for Friday. We uphold our view, that the possible step-up in rate hike expectations in the US and the EU is the main short to medium term risk for the zloty, apart from the somewhat less significant but also discouraging political background. That’s why the ECB decision on rates and wording which follows should also get plenty of attention later this week.
As for today the domestic release calendar is empty and will remain so for the rest of the week, hence more core-market-driven sideways trade within the current 3.90-3.95 EUR/PLN range could be expected.
(CSOB - Investment research)