USD/PLN testing back into highs near 4.3570 as Polish Zloty slumps

• The Polish Zloty (PLN) is floundering as Polish central bank fails to inspire confidence.
• Poorly-timed rate cuts are sawing the floor out from beneath the Zloty.
• PLN down around 11% against the USD in two months.

The USD/PLN continues to shake off any kind of meaningful reversal as the Zloty continues to waver in the face of weak fundamentals. The National Bank of Poland (NBP) recently brought a surprise interest rate cut despite Polish inflation still measuring above 10%.

The Deputy Finance Minister of the NBP, Artur Sobon hit the airwaves early Thursday attempting to assuage markets, stating his hopes that the Zloty will stabilize as there is no fundamental reason for it to weaken further.

The headlines apparently failed to convince markets, and the PLN reversed its near-term recovery, sending the USD/PLN to recent highs as the Zloty continues to lose ground.

PNB jawboning fails to inspire confidence

Deputy Minister Sobon also stated that the Polish government is open to using liquidity tools to stabilize the Zloty if necessary, and reiterated that the government is “very keen” to stabilize interest rates.

PNB Governor Adam Glapisnki recently came under heavy fire for the unexpected rate cut in the face of stubborn inflation within Poland’s economy, with detractors lining up to accuse the central bank head of using his position to enact politically motivated policy changes.

Governor Glapinski is an open supporter of the ruling Law & Justice party of Poland, and the country is heading into a bitter general election in the middle of October. Economists and political opponents alike are accusing Governor Glapinski of using the rate cut as a means of providing support for the Law & Justice party, making short-term lending and borrowing cheaper at the expense of the broader economy.

Further reading: USD/PLN taps 4.38 as Poland threatens to extend Ukraine grain embargo

USD/PLN technical outlook

From a technical standpoint, the USD/PLN is incredibly overbought as bullish momentum has gone increasingly one-sided, but a continued weakening in the Zloty will see the pair challenging a resistance zone from 4.4500 to 4.4800. 

The 100-day Simple Moving Average (SMA) is quickly turning bullish and rests well below current action at 4.1250, with the 50-day SMA set to print a bullish cross of the longer SMA, currently turning upwards from 4.1000.

USD/PLN daily chart

USD/PLN technical levels