PL Macro: Zloty recoups losses

After an unimpressive opening and shaky start of the session which saw the zloty inch closer to the 3.99 EUR/PLN mark, the currency managed to recoup more than the morning losses and returned to the 3.97 area at the end of trade. With the market near dead-calm in recent days, the zloty has more than lived up to its legendary resilience to politics and we see no tangible reason for the ongoing government crisis to cause significant damage to the sentiment.

Our view: An overview of all the political options proves that the zloty’s weakness is in fact justified - the worst case scenario (and the least likely) would be the return of the populist to the coalition, which would basically put markets at the starting point, while even though earlier elections could very well end in a political stalemate, they could also end in victory for the market-favorite liberals, which have so far benefited the most from the political crisis at hand. As we have stressed before, the elections would probably change little or nothing in terms of next year’s fiscal policy, while in retrospect, the recent breakup of the parliamentary majority has been viewed as a simple trade-off between political and fiscal stability. The core markets are expected to become the key sentiment driver for FX and bond markets, especially since the domestic calendar is empty until next week.