Zloty recovers sharply after selling off on Friday

Poland Q2 GDP data released on Friday were weaker than expected, but core inflation relaesed on same day accelerated to 0.4% y/y as expected. Following the GDP data, the zloty sold off hard in anticipation that NBP may soon signal renewed rate cuts - PLN-HUF declined to below the key 74.00 threshold at one point - but the zloty recovered sharply by the European close. 

"The GDP data were dovish but not enough to re-open the easing cycle. What one would need is fresh panic about deflation triggered by China. But since Polish core inflation accelerated from 0.2% y/y to 0.4% y/y, we would need to see Chinese devaluation continue and commodity prices keep falling before NBP would accept this as the trend - quite to the contrary, PBoC commented that devaluation is done for now. Hence, on balance, we view the events as monetary policy and zloty neutral and expect EUR-PLN to trade back near 4.15 in coming months", says Commerzbank.