EUR/PLN: Dovish NBP and external headwinds cap zloty's upside – Danske Bank

The dovish signals from the NBP have made economists at Danske Bank a bit more cautious on the prospects of substantial tightening despite inflation staying elevated. They have consequently raised the trajectory for EUR/PLN.

Persistently elevated unit labour costs, rapid rise in US yields and dollar or further souring of the risk sentiment remain key upside risks

“While activity in the Polish economy remains brisk, the delta variant and a stalling vaccination process have turned the NBP more cautious, challenging the market’s hawkish pricing of returning to 1.0% within one year. We still see a case for higher rates and more hawkish NBP in November, although with less conviction.”

“Poland’s large external refinancing needs leave PLN exposed to rise in US yields/dollar. Risks of further souring in global risk sentiment, EU tensions and the Covid-situation also loom in the background, especially given NBP’s focus on the pandemic developments.”

“We have turned more cautious on the upside potential for PLN in the latest FX update, targeting the EUR/PLN at 4.55 in 3M (instead of 4.48).”