FxWirePro: A glimpse at PLN’s outperformance/underperformance and trade recommendation

It is reckoned that CE4 FX is most likely to underperform the dollar-driven high betas in EMFX-bloc in the days to come. 

NBP is set to announce a rate decision today: there is no prospect of change in monetary policy at this stage. As Governor Adam Glapinski regularly reminds us, the benchmark rate is likely to stay unchanged at 1.5% through end-2020, if not considerably longer. 

This second outcome would be more likely if eurozone core-inflation remains soft (and below target). Polish CPI data did surprise strongly to the upside in April (accelerating from 1.7% to 2.2%), but this is being viewed to be the result of Easter package holiday pricing, just like elsewhere in the eurozone – this effect will fade soon. 

Nevertheless, the chance of some inflation acceleration is increasing because the labor market is tight, and wage growth has, once more, accelerated to 7%-plus. Nevertheless, NBP is more likely to respond to this via the mild tightening of lending norms for the banking sector, than by actual rate hikes.

Higher real yields and solid basic balance position should see Zloty outperform CE3 peers. Inflation has recently surprised to the upside, which could support monetary policy expectations and in turn the currency. Together with our bearish view on HUF, we have recently revised our target for our long PLN/HUF upwards to 77.00 levels. 

Finally, from a valuation perspective, Zloty remains undervalued in our BEER fair value model by around 8.0%.Courtesy: JPM & Commerzbank

Currency Strength Index: FxWirePro's hourly USD spot index is flashing at 120 levels (which is highly bullish) while articulating at (15:19 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex