PLN: Dovish Wages Prompt NBP Repricing As Data Keep Testing Latest Projection

CE3 FX are under pressure amid relatively heavy losses for EUR/USD and generally cautious sentiment. EUR/PLN trades at 4.1937, 81 pips higher on the session, ticking away from session highs now. Market participants parsed dovish economic activity data released out of Poland, with another miss in wages seen as a dovish development. From a technical standpoint, a sustained break above the 50-EMA at 4.1981 would open up Feb 4 high of 4.2379, while bears keep an eye on short-term trendline support at 4.1817 (pierced today).

• Nominal wage growth slowed to single digits in December, cooling further to +9.2% Y/Y in January and +7.9% Y/Y in February, as a reduced minimum wage hike kicked in at the beginning of the year. The NBP's projection released last week estimated 1Q25 wage growth at +10.1% Y/Y, which is unlikely to materialise.
• Other economic activity indicators also fell on the dovish side of expectations, which comes on the heels of below-forecast inflation figures published around the turn of the week. In addition, the government confirmed that electricity tariffs should decline, or else the price freezing mechanism could be extended, which undermines the assumptions behind NBP's forecast.
• Dovish data triggered another round of dovish NBP repricing amid a cumulation of signals testing NBP Governor's hawkish rhetoric. POLGB yields sit 5.1-5.7bp lower at typing, with the space consolidating gains registered in reaction to the data. Polish FRAs have faltered across the curve.
  • The 3-Month WIBOR/9x12 FRA spread is 115bp at typing, while the spread with 3x6 FRAs sits at 23bp. Based on our review of sell-side notes, most still expect rate cuts to commence no sooner than in July, when the NBP publishes the next macroeconomic projection, but there is ongoing discussion about the magnitude of subsequent easing.
• Over the past few days, Ludwik Kotecki and Przemyslaw Litwiniuk both floated the idea of voting on a rate cut already in 1H25 but this was met with swift pushback from the Governor's ally Gabriela Maslowska, who said that easing could start in late 2025/early 2026. Separately, Cezary Kochalski said that a rate adjustment could be delivered in July, data allowing.