Polish inflation has dropped to the National Bank of Poland’s 2.5% target, marking a significant shift in monetary policy expectations that is weighing on the zloty against the euro. ING strategist Frantisek Taborsky reports the decline was driven by widespread price reductions while core inflation remained stable, prompting markets to abandon expectations of interest rate hikes and begin pricing in potential cuts instead.
The shift in rate expectations is creating downward pressure on Polish market rates, with direct implications for zloty strength. Currency traders are adjusting positions as the probability of monetary easing increases, reversing the hawkish stance that previously supported the currency. This development affects forex participants trading EUR/PLN and positions tied to Central European emerging market currencies.
The timing comes as regional central banks reassess policy amid cooling price pressures across Europe, though Poland’s move to target has been particularly swift.
FXnCO Insight
Traders should monitor EUR/PLN for continued zloty weakness as rate cut expectations build, with Polish bond yields likely to compress further and create carry trade headwinds.
Source: FXStreet