CEE FX: Dovish NBP outlook signals further zloty weakness – ING

EUR/PLN is expected to settle above 4.420, according to ING strategist Frantisek Taborsky. He points to resilient CEE economies: Czech and Hungarian PMIs remain strong, Poland is improving and Romania is weakening. Yet he regards the Polish Zloty as the region’s weakest currency. Political uncertainty and adverse global conditions have accompanied EUR/PLN’s push towards new highs. A dovish NBP outlook and fiscal concerns add to expectations of further Zloty depreciation.

Above 4.420: EUR/PLN Target Signals Bearish Zloty Outlook

"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. Know more.)