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EUR/PLN forecast: Buoyed by zloty’s underperformance?

By James Skinner

Edited by Jekaterina Drozdovica

17:01, 22 October 2021

EUR/PLN forecast
Source: Shutterstock

The EUR/PLN pair may find itself supported or perhaps even lifted further into the year-end, as some analysts are suggesting, due to the National Bank of Poland (NBP)’s monetary policy outlook and a Constitutional Tribunal judgment that has escalated a long-running power struggle between the European Commission (EC) and the Polish government.

A briefly attempted recovery had put the EUR/PLN pair under pressure on 6 October 2021 after the NBP surprised the market with a 0.4% increase in its main interest rate to 0.50%, although the rally was short-lived.

“Dovish comments of the NBP governor and the verdict of the Polish Constitutional Tribunal pushed the rate up again,” said Piotr Bujak, chief economist at PKO Bank Polski, Poland’s largest bank, in an 8 October macroeconomic commentary. 

The zloty booked 2021 losses against most in the European and G10 segments of the currency market during the 10 months to the middle of October, when it was seen only rising against Romania’s leu, the Swedish krona and Japanese yen as a result of this EUR/PLN news. 

Yet some within the analyst community have cautioned that the Polish currency is set to continue to underperform, which could mean that the EUR/PLN pair might remain buoyant near its 2021 highs.


NBP policy is driving EUR/PLN

The NBP interest-rate policy has become a more prominent driver of the EUR/PLN exchange rate, as well as the zloty’s performance over recent months.

This is after Polish inflation rose to 5.9% in September – its highest level since 2001, and more than twice the National Bank of Poland’s target to ensure it remains around 2.5% over a medium term or multi-year forecast horizon.

Such inflation rates already saw other central banks, including those in Hungary and the Czech Republic, begin lifting interest rates this summer, but the NBP showed no inclination towards following suit until 6 October, when it reversed one of the three cuts made during the onset of the pandemic.

“In yesterday’s statement – not by accident – the phrase that ‘it's the beginning of a tightening’ is missing, but there is also no mention that it is a one-off,” president Adam Glapiński reportedly said in a press conference a day after the decision. 


While the EUR/PLN was weighed down and the zloty lifted by the initial interest-rate rise, Gapliński’s subsequent press conference stoked doubt in the market that the interest-rate rise would be followed by any further such moves any time soon.

“He came across dovish, stressing that the central bank was now in a wait-and-see mode and further rate hikes would depend on the evolution of the economy,” said Lars Sparresø Merklin, a senior analyst at Danske Bank, in a research note following the decision. “The market is priced for further 150 basis point [bp] hikes over the next year.”
This left the zloty deflated because Gapliński’s remarks suggested he still views increases in Polish inflation as due to international factors beyond the control of the NBP – and that investors may be wrong to expect further interest-rate rises will be announced over the coming months.


“Ambiguous MPC [Monetary Policy Committee] communication makes it hard to assess prospective rate hikes. If anything, we expect a disappointment in November, looking for a 25bp hike, rather than the 50bp being priced in,” wrote Rafal Benecki, a Warsaw-based senior economist and financial market strategist at ING, in an October research briefing

The NBP also warned that it remains ready to intervene in the currency market if the zloty strengthens too far for its liking, which could mean there’s a limit on how far the EUR/PLN pair would be allowed to fall even if the NBP does not further disappoint the market’s interest rate hopes.

“Poland’s central bank is way behind the curve,” said Anders Eklöf, chief FX strategist at Swedbank, in a research note. “The bank still says they may intervene if the zloty appreciates too much.”

EUR/PLN rose back into the upper half of this year’s 4.45–4.65 range following the governor’s press conference, reversing all of the gains made in the wake of the October decision and then some.

Political risk also limits PLN recovery potential

The NBP’s policy approach is a constraint on the zloty and a supportive factor for EUR/PLN. However, the Polish currency may now also face further barriers to any recovery due to October’s Constitutional Tribunal judgment.

“The country has severe problems with its relation to the EU [European Union],” said Swedbank’s Eklöf. “We maintain our negative outlook for the zloty.”

The judgment covers the conformity of European treaties to the requirements of Poland’s constitution when “construed”, as they have been in Brussels and other European capitals, which may have opened a further can of worms for those trading zloty. 

“The Polish Constitutional Tribunal has declared the primacy of the Polish Constitution over EU laws, denying the European top court (CJEU [the Court of Justice of the European Union]) the right to interfere with the Polish judicial system,” said Bujak.

interest rates in cee

“The verdict might (again) delay the approval process of the Polish Recovery Plan,” Bujak warned, referring to an EU [European Union] recovery and resilience funding package worth €23.9bn [$27.8bn, £20.1bn) to the Polish economy in the years to 2026.

The tribunal’s review was requested by Prime Minister Mateusz Morawiecki following repeated clashes between Warsaw and Brussels over a range of politically sensitive subjects, but has widened the confrontation with the EC.

“EU law has primacy over national law, including constitutional provisions. All rulings by the CJEU are binding on all Member States' authorities, including national courts,” the Commission said in a statement


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“We will analyse the ruling of the Polish Constitutional Tribunal in detail and we will decide on the next steps. The Commission will not hesitate to make use of its powers under the Treaties to safeguard the uniform application and integrity of Union law,” the bloc’s executive also said. 

EUR/PLN alongside the spread between half-year and 10-year German and Polish government bond yields

Poland’s top court ultimately ruled that certain parts of the treaties creating the EU and its institutions are being “construed” by the EC in such a way as to afford the European institutions rights and powers that are incompatible with parts of the Polish constitution.

“My guess is that we are in for more FX weakness and higher yields,” said Erik Nielsen, global chief economist at UniCredit, writing in an 10 October research note. “Whether this will lead to a re-think in Warsaw – or in the population more broadly at the next election – I don’t know.”
“Before taking effect, the ruling has to be published in the Official Gazette, and the government could delay this if it wants to find a compromise or back down,” Nielsen added.

The judgment has already elicited suggestions from opposition politicians that it jeopardises Poland’s place in the EU. Even though Moraweiecki insists that Poland remains committed to the bloc, the ongoing confrontation with Brussels may be casting a cloud over the outlook for the zloty. 

What are analysts saying? 

Analysts do still make bullish arguments for the zloty and the EUR/PLN pair, but these have become more cautious in recent months, and the EUR/PLN predictions are now more uncertain. 

This is partly because market hopes of another interest-rate rise in 2021 are low and in 2022 all members of the NBP MPC – barring the governor –  will be replaced by others whose leanings are unknown. 

“With EUR/PLN less than 20% of the way to its lowest level since early 2020, the zloty features an attractive entry point,” said Ian Tomb, a research analyst in the emerging markets macro strategy team at Goldman Sachs International in a research note on 8 October.
“However, given the general opacity about the NBP’s reaction function, which was further exacerbated after unclear communication around actions this week, the risk remains that the currency stays weak,” Tomb added.

Other analysts at Goldman Sachs are more cautious in their outlook, but still forecasted the EUR/PLN pair to fall to around 4.50 over the three months from October and to 3.75 in the six months from October, which implies a recovery for the zloty from mid-October levels of 4.57 for EUR/PLN.

EUR/PLN rate chart 2002–2021
“The market will now debate if today’s hike is a one-off or how much the NBP would hike from here. These are relevant questions,” said Murat Toprak, senior CEEMEA FX strategist at HSBC, in a research note following the NBP’s October decision.
“But with inflation running well above the target, an output gap turning positive and a pro-cyclical, loose fiscal policy, the NBP will face sustained pressure [to raise interest rates further] in the months ahead,” Toprak added.

Toprak and his colleagues have a bullish outlook for the zloty, however. On 6 October, they stuck by their forecast for EUR/PLN to fall to 4.40 by year-end, which would be the Euro’s lowest level against the Polish currency since the early months of 2020.

“Negative sentiment towards EM [emerging markets] currencies and fears over increasing tensions with the EU should keep EUR/PLN close to 4.60 into the year-end, with upside risk,” said ING’s Benecki. “In H1 2022, we expect gradual PLN recovery.”


EUR/PLN forecast for 2021 and beyond

The analysts’ views are mixed largely because of uncertainty about the NBP policy outlook and the fractious power struggle between Warsaw and Brussels, which may keep the EUR/PLN pair buoyant and near its 2021 highs as the year-end approaches.

As Interest-rate changes are among the most powerful influences on exchange rates, the NBP’s tight-lipped approach has placed a question mark over the merit of market expectations for it to continue raising rates in the months ahead. 

“Our new base-case scenario assumes no more interest rate hikes this year, and three additional moves by 25bp each in 2022, leaving the key NBP rate at 1.25% at the end of 2022,” said Bujak. “We have to – again – emphasise the key aspects of a still-high forecast uncertainty.”

PKO Bank Polski had looked for the EUR/PLN pair to end 2021 at 4.48 before rising to 4.61 in the opening quarter of 2022, but these EUR/PLN exchange rate forecasts have been under revision since the NBP’s October policy decision. 

interest rates expetations
“We are now left waiting for the November meeting, where the new macro projections will be available,” Merklin said. “We are doubtful that the committee will change to a significantly more hawkish stance, which means that PLN could trade on the weak side.”

Given how sensitive currencies are to interest-rate decisions, Poland’s zloty could remain under pressure if the NBP disappoints the market by leaving its interest rate unchanged following November’s policy meeting, or if it casts doubt over market assumptions about the cash rate next year.

In addition, the quarrel with the EC and other European capitals has already meant Poland’s slice of the EU’s recovery and resilience fund has been held back once, and may yet have further consequences for the economy or simply for investor sentiment towards the currency.

“With well-telegraphed hiking cycles well under way both in Czech Republic (where the CNB hiked by more-than-expected last week) and Hungary (where FX weakness is an important consideration for monetary policy), the zloty may struggle to outperform its regional peers for now,” Goldman Sachs’ Tomb and his colleagues commented in addition.

Reasons to go long on EUR/PLN

The decision to trade must be based on your own analysis, which can be a technical analysis, fundamentals or both. Here are some reasons that may support a decision to go long on EUR/PLN:

  • Financial markets are assuming that more interest rate rises will be announced in Poland during the coming months, but the National Bank of Poland (NBP) has indicated that it could disappoint these expectations. 

  • The NBP has said it will intervene in the forex (FX) market by selling its own currency if the zloty rises too much for its liking, which may mean there are limits to the extent of any downward moves that could be seen in EUR/PLN. 

  • The confrontation between the Polish government and the European Commission (EC) could continue for some time and may lift EUR/PLN if it leads investors to fear for Poland’s economy or grow reluctant to hold the zloty.

Reasons to go short on EUR/PLN

The decision to trade must be based on your own analysis, which can be a technical analysis, fundamentals or both. Here are some reasons that may support a decision to go short on EUR/PLN:

  • The zloty’s underperformance is connected to doubts about whether the NBP will meet market expectations for interest rates, so the EUR/PLN pair could fall if the bank does ultimately follow through with a further rate rise in November or after. 

  • HSBC expects that further interest rate rises will be announced by the NBP, and its forecasts suggest this will push EUR/PLN down to 4.40.

  • The confrontation between the Polish government and Brussels may be resolved, which could benefit the Polish economy if it leads the EC to release payments and grant monies from its Recovery and Resilience fund. 

Whether you go long or short is your decision. Always remember that your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money. And never invest money you cannot afford to lose.


Will EUR/PLN go up or drop?

Some of the analyst forecasts in this article suggest the EUR/PLN pair could fall sharply before the end of 2021 while others have warned of a further increase. The increases that are anticipated are smaller than the declines that have been projected by those who look for EUR/PLN to fall, however. 

Investors and traders should note that analyst forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

What is the best time to trade EUR/PLN?

The optimum timing would depend on whether a trader goes short or long on EUR/PLN. The currency market is open 24 hours a day, five days a week. The EUR/PLN pair can be traded between Sunday at 22:00 BST (UTC +1) to the same time on Friday. 

However, the largest share of FX trading is carried out in London during European hours, which means market liquidity and trading volumes are generally at their highest during that time.

When to buy or sell EUR/PLN?

Generally speaking, short trades are most profitable when entered into at the highest possible price level and vice versa with long trades. However, traders should make their own decisions on when to buy or sell any asset or product following their own process of research and evaluation.

Read more: USD forecast: Сentral bank divergence to boost the currency?

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