The Polish zloty was under pressure on Thursday

The Polish zloty was under pressure on Thursday mirroring the correction on the bond market. Selling was inspired by some downbeat political news and softer market sentiment in the whole CE4 region. Yesterday’s remarks from Self-Defense aimed at the PiS (see more in fixed income part) strengthen our view that cracks within the parliamentary coalition between the conservatives and populists remain the key risk for the zloty in the short run. Regardless of whether PiS retains its current uncompromising stance, which would frustrate its partners even more, or whether it decides to go for some concessions in favor of its allies, we expect zloty to stay away from recent highs in the days to come.

The rise in political risk also stands behind our baseline longer term FX scenario. In this respect the zloty might fall back to the 3.9-4.0 EUR/PLN later this year area despite the healthy economic fundamentals. As for today’s trading, the zloty will most likely continue to follow Polish bonds. We are fairly confident though that unless politics kicks in we should see strong offers at 3.80 EUR/PLN. This should help keeping the zloty trading in the current 3.75-3.80 EUR/PLN range ahead of the weekend.

(CSOB - Investment research)