The Polish zloty got off to a strong start of the session on Thursday, after the Fed’s beige book report on the US economy sparked sharp overnight falls for the dollar. The EUR/PLN pair was soon looking solid enough to consider an attack on 3.90, but eventually came just short of it as profit taking kicked in mid morning trade. Even though the NBP inflation report was well flagged by the MPC the day before, the full text of the publication offered some interesting points to look at.
The report shows, that the zloty to remain vigilant due to the strong economic fundamentals, limited external imbalance, FDI inflow and increase in EU funding, which is already something widely accepted by financial markets. But apart from this rosy picture the central bank sees some short term downside risks – capital outflows from emerging markets due to the narrowing interest rate differentials, fiscal issues and domestic politics should all work against the zloty in the near future. Even though these arguments are debatable, we generally tend to agree that the short term risks are skewed slightly in the direction of a weaker zloty. The US data calendar is quite heavy today and with the Fed meeting just round the corner it should get ample attention from markets today. Until then we expect more range trade from the zloty in the 3.90-3.93 EUR/PLN range.
(CSOB - Investment research)