FxWirePro: A glimpse at PLNs 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.

The National Bank of Poland (NBP) held its benchmark reference rate at a record low of 1.5 percent on May 15th, 2019, as widely expected, after inflation rate rose to 2.2 percent in April, the highest level since November of 2017 and slightly below the central bank's medium-term target of 2.5 percent.

Also, the Lombard rate and the deposit rate were kept unchanged at 2.5 percent and 0.5 percent, respectively, and the rediscount rate was left unchanged at 1.75 percent.

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. NBP is more likely to respond going forward 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 the bearish view on HUF, we have recently revised the target for our long PLN/HUF upwards to 77.00 levels.

Finally, from a valuation perspective, Zloty appears to be undervalued in JPM's BEER fair value model by around 8.0%. Courtesy: JPM & Tradingeconomics

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


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