The Polish zloty inched higher past the
3.96 EUR/PLN support with surprising
ease on Tuesday and headed into the
3.94 area as stop-loss transactions kicked
in below 3.95. The rally ended by noon
though and the pair quickly settled into an
extremely tight range, as eyes turned back
to politics once again for a while. The
Polish Peasants Party (PSL) offered the
ruling conservatives from the PiS a 3
month pact of “good will” in order to pass
the 2007 budget and prevent earlier
elections.
The PiS responded relatively
positively to the proposal, and high ranking
politicians stressed that the road to
coalition talks had been reopened. No
definite declarations have been made so
far, although the threat of the flash poll
seems to have faded somewhat.
Nonetheless we still have doubts whether
the conciliatory tone is anything more than
pre-election play from the PSL and PiS
ahead of the local elections next month,
especially since the two parties together
with the far right LPR and the
parliamentary plankton still lack 6 votes to
form the (frailest possible) majority in the
Sejm.
However if the deal is eventually sealed or
if it leads to the renewal of coalition
negotiations (the conservatives have so
far advocated strongly for a proper
coalition agreement), it should provide the
market with some short term relief from
uncertainty associated with the looming
earlier elections and help investors focus
on the economy rather than politics. At the
same time we stick to our view that in the
longer term perspective the coalition
(which will be weak by definition) is,
comparably, a worse scenario for the zloty
than earlier elections so any further upside
may very well be short lived.
Zloty firmed on signals of political crisis
solution.
(CSOB - Investment research)