EUR/PLN to edge lower over the coming months – Danske Bank

The relatively dovish language of the central bank in July together with a stronger USD led to an upward move in EUR/PLN slightly higher than 4.52. Despite the fact that the market has almost priced in a full 25bp hike in November, economists at Danske Bank still expect such a decision to strengthen the zloty.

Rate hike in play

“Although a rate hike is almost fully priced in for November, we think an actual hike could still yield strength to the zloty due to the positive carry element and as it would be accompanied by toned down language on the need for FX intervention.”

“We see EUR/PLN to grind lower over the fall, but raise our one-month target to 4.54 (from 4.52).”

“Over the long-term, we think the pair will see support from higher inflation pressures in Poland compared with key trading partners.”

“The risk to our forecast is to the upside for EUR/PLN, mostly that EUR/USD falls sharper than we expect as well as a global equity market sell-off.”

“Among the downside risks is a stronger recovery of the Polish and global economy and NBP turning more hawkish than currently assumed in the markets.”