The Polish zloty extended Friday’s losses on Monday

The Polish zloty extended Friday’s losses on Monday, still suffering from the regional sell-off inspired by the broadly weaker Turkish lira. After the relatively soft opening at 3.90 EUR/PLN the pair headed straight up only to find some breathing space, in the 3.92-3.93 area. All would have probably ended well for the zloty if not for the gently weaker than expected headline CPI figure (0.7% y/y compared with the 0.6% market consensus and 0.4% a month earlier) and the exaggerated reaction from the bond market. Yields plummeted and the EUR/PLN immediately followed bond yields higher to 3.95, before retreating to 3.93 at the end of trade.

The regional sentiment and euro dollar will remain the key driver for the zloty today. If the emerging market flight continues we could see 3.95 EUR/PLN broken fairly easily, even though for now it looks as if the major selling has ended, possibly allowing for a gentle upward correction. EUR/PL moved in to the 3.9 area.

(CSOB - Investment research)