The Polish zloty gave up some of its gains on Monday as some players decided to take profits after the EUR/PLN came close to the 3.75 threshold for a consecutive time in recent days. The gentle technical correction pushed the pair back to 3.77 at the end of the day, although we believe that with market activity thinned by US holidays the move was exaggerated and as such does not signal a new direction for the zloty in the coming days. The sell-off itself was triggered by PiS leader Jaroslaw Kaczynski, who denied newspaper speculations that he is considering replacing PM Kazimierz Marcinkiewicz due to an ongoing conflict between conservative leaders and prime minister. It looks as if it was Kaczynski’s response, rather than the actual media coverage, which drew the market’s attention to the issue. Otherwise it would have probably gone unnoticed. This shows however, that politics remain the single most important risk factor for the zloty both in the short, mid and long term perspective. We believe, that the market will look closely at potential disagreements both within the PiS (possibly involving ex-liberal MinFin Zyta Gilowska) and the stabilization pact.
US players and hence liquidity should return to the market today, so it will be interesting to see whether the PLN holds to current levels (which we believe will be the case) or whether Monday’s move will develop into a broader sell-off, possibly ending back in the 3.80 area.
(CSOB - Investment research)