In terms of price action we are trading sideways at present but we expect the EUR to move higher on the PLN – a review of the fundamentals sentiment and technicals below:
“We continue to hold a long-term positive view on zloty and think that EUR/PLN will fall back to 4.50 by the end of the year. Although inflation is still of great concern, the NBP has been much more decisive in tightening than the ECB. In addition, it seems that Poland is on a path to resolving the issues that stand in the way of receiving EU pandemic recovery funds.” (TDS)
We would agree with the above if it was not for the fact we have the war in Ukraine and the prospect of a major move to risk-off which will hurt export-led economies like the PLN.
The main support for the Zloty is a high-interest rate in our view.
Last week the benchmark rate was raised by 75 basis points to 5.25%, the highest level since 2008.
Most economists predicted a full percentage-point increase.
The central bank’s rate increases, the eighth in succession have failed to slow price growth and inflationary pressure.
Inflation accelerated to 12.3% in April, the quickest rise in 24 years, for the most part, driven by a spike in natural gas and fuel prices.
The rate increases though are hitting consumers hard.
For example, last month the government last month had to put in place a support plan for mortgage borrowers. Russia has halted gas deliveries to Poland, which will help to keep inflation high.
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The market is looking for the central bank to remain hawkish and raise rates to +7% but the smaller than expected rate increase last week by the central bank may be a sign of caution in terms of not hitting consumption and consumer too hard.
A hawkish central bank will be outweighed by nervousness over the situation in Ukraine and also a risk-off environment that could get worse.
On the chart below we are trading in a tight sideways range and on a breakout, we would expect a move back up to recent highs.