No Juice Left for Central Europe’s Standout Currency Winner

(Bloomberg) -- Election jitters have started to undermine the biggest currency gain in the European Union’s east this month.

A month before Poland’s parliamentary vote, the zloty is hanging on to an almost 1% advance in September against the euro. The central bank’s record stretch keeping interest rates on hold while the European Central Bank and other regulators cut, has created a relatively attractive policy differential for investors.

But even after Mario Draghi’s dovish salvo last week, the zloty was one of the only currencies in the region to buck emerging-market gains on Wednesday, suggesting to Rabobank’s Piotr Matys that concerns are starting to seep in.

“I expect an attempt for the EUR/PLN pair to break above 4.40 in the coming weeks,” Matys said. That’s 1.4% weaker than the level the currency was trading at on Wednesday afternoon and would mark the zloty’s lowest level in more than a year.

Market unease surrounding the ruling Law & Justice Party’s pre-election spending measures before the vote comes high on the list of Matys’ concerns. It’s joined by trade-war uncertainty and the possibility of a global recession.

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