CEE FX: Could the zloty weaken further amid a dovish NBP outlook? – ING

Further weakness in the Polish Zloty remains the expectation of ING strategist Frantisek Taborsky, who regards it as the weakest currency in the CEE region and sees EUR/PLN above 4.420. Political uncertainty and adverse global conditions have accompanied the pair’s test of new highs, while a dovish NBP outlook and fiscal concerns add to pressure on the Zloty. By contrast, Taborsky points to resilience across CEE economies: Czech and Hungarian PMIs remain strong, Poland is improving and Romania is weakening.

Why Is the Zloty Outlook Bearish, With EUR/PLN Seen Above 4.420?

"Yesterday’s PMI readings in the region confirmed the economy's strong position across the board. The outlook remains positive. With the exception of Turkey, all countries show PMI levels higher than those seen before the onset of the US-Iran conflict."

"The Czech Republic and Hungary appear particularly strong, hovering near or reaching new highs; Poland is edging higher, while Romania has declined once again. Overall, however, the economy continues to show resilience, pointing to a stable outlook for the coming months."

"EUR/PLN tested new highs yesterday following political headlines over the weekend. In our view, these developments provide further bearish momentum, suggesting additional downside for the zloty."

"Additionally, we anticipate a dovish tone from the National Bank of Poland at this week’s meeting. Taken together, we continue to view the zloty as the weakest link in the CEE region and expect the EUR/PLN pair to settle above 4.420."

"Naturally, global conditions remain unfavourable, characterised by a strong US dollar and high energy prices, despite some improvement yesterday. Furthermore, Poland’s public finance deficit, the highest in the EU, leaves the country exposed to potential turmoil in the euro-denominated bond market."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)