The Polish currency lost a lot of ground on Tuesday on the back rising political worries and deterioration in investment sentiment toward emerging markets. The session opened at 3.8280 EUR/PLN and 3.1950 USD/PLN and just after that the sell-off of Polish assets started. The downbeat trend of the zloty continued for the next few hours, breaking the key support level of 3.87 EUR/PLN, as stop losses of foreign players were triggered. It is worth reminding that on Friday the PiS leader Jaroslaw Kaczynski announced, that conservatives might dissolve the parliament and trigger snap elections, if the parliamentary pact underpinning the government remained shaky.
From our perspective the risk of earlier elections is currently low as the main goal of the PiS is to pass key legal bills through the parliament (e.g. on Central Anticorruption Agency) not to call for earlier elections. Hence currently nervous political atmosphere should calm down in the coming days and the zloty should recover a large portion of the last day losses.. Negative market sentiment may extend over today’s session as the Polish parliament will start works on a separate proposals to introduce a fuel tax breaks for farmers. A failure of this project may trigger further tensions between the ruling PiS and Self-Defence.