Sterling gains against Polish zloty yesterday

Sterling has strengthened against the Polish zloty over the last week despite last month’s inflation figure coming in better-than-expected at 3.6%, down from 4% in April and below analyst’s predictions of 3.8%. This bolstered hopes of a Polish interest rate cut this month, following holds in April and May because of higher inflation and a weaker zloty. Yesterday, the Polish government approved a cautious 2010 budget outline which forecasted GDP growth of 0.5% and average annual inflation of 1%. Poland has suffered a sharp economic slowdown since Christmas, with GDP growth expected to reach just 0.2% this year, down sharply from 4.9% in 2008 but still better than most others in recession-ravaged eastern Europe. The 2010 Polish budget outline also envisaged unemployment to reach 13.8% by end-2010, up from around 11 percent now. All these factors combined, and the resulting speculation over how much money the Polish government will have to borrow next year, weighed on the zloty yesterday. Crucially, the centre-right government has not yet set the level of its 2010 budget deficit, which may prove critical for both Poland's eurozone entry ambitions and for the zloty and bond prices. In terms of the UK, improved sentiment surrounding its economy, prompted by more positive UK housing and industrial production data, has seen sterling gain against a basket of currencies recently, of which the Polish zloty is one.