PLN: Zloty Brings Up Rear In EMEA Space Amid Inflation Undershoot

The zloty has fallen behind its regional peers as benign inflation data increased the chance of an imminent interest-rate cut and a more dovish monetary policy profile over the medium term. When this is being typed, EUR/PLN trades at 4.2354, around 60 pips higher on the day, with bulls looking for a push towards Apr 16/Dec 25 highs of 4.3102/4.3114. At the same time, the 50-DMA is heading downwards toward the 200-DMA and a resumption of losses could result in a 'death cross'. On the downside, a dip through the 4.22 mark would open up the 4.20 handle.

• Poland's economy continues to develop according to a 'goldilocks scenario' with upbeat data from real economy coupled with signs of an easing tension in the labour market and cooling inflationary pressures. This raises questions about the NBP's most recent macroeconomic projection, which showed that the negative output gap is closing and will be around zero in the coming quarters as the economy returns to steady state.
• Flash November CPI data today showed that headline inflation fell below the NBP's +2.5% Y/Y point-target to +2.4%, with sell-side analysts pointing to the implied significant drop in core inflation. The dovish message from the data was amplified by the release of October labour market indicators earlier this week, with nominal wage growth slowing to +6.6% Y/Y, the lowest point since February 2021.
• POLGB curve has bull steepened in reaction to the inflation data, yields last sit 4.2-8.2bp lower across the curve. Local FRAs have faltered across the curve, with 1x4 contracts sitting 21bp below 3-month WIBOR, reflecting the repricing in favour of the scenario of another interest-rate cut at next week's central bank meeting.
• The broad-based WIG Index is marginally softer; blue-chip WIG20 is virtually unchanged. The WIGBank Index has shed 0.5% after President Nawrocki signed off on a corporate tax hike for banks. The energy subindex/Energa shares have seemingly been unfazed by the regulator KNF's probe into Orlen's bid to increase its stake in the utility to 100%.