Polish Zloty: Budget Risks Point to Further Weakness vs Euro - Societe Generale

Societe Generale analysts noted in their latest report that structural pressures on the Polish zloty are intensifying, with persistently high fiscal deficits and rapidly expanding public debt levels potentially driving the currency further weaker against the euro. The bank emphasized that the upcoming draft of Poland's 2027 budget will serve as the next key test, directly gauging international investors' confidence in Poland's fiscal discipline.

**Fiscal Risks as Core Drag**

Market reports indicate that Poland's fiscal position is under close scrutiny. Although the Polish central bank previously held its benchmark interest rate unchanged at 3.75%, and market expectations broadly suggest no policy loosening this year, monetary policy stability is unlikely to offset negative sentiment on the fiscal front. Analysts believe that if the draft budget fails to present a credible deficit reduction path, the zloty's valuation foundation will be eroded, potentially increasing capital outflow pressures.

**Technical Levels at a Sensitive Juncture**

From a trend structure perspective, the euro-zloty pair is in a key consolidation phase. According to Societe Generale's observations, the currency pair has recently been trading near an uptrend line formed since February 2025, repeatedly testing the 200-day moving average. This technical pattern typically signals an imminent directional breakout, and fiscal risk events could act as the catalyst driving the exchange rate higher.

**Short-Term Focus on Budget Tone**

Market attention has shifted to the budget details Poland's government is set to unveil. SocGen analysts cautioned that if debt growth exceeds expectations or deficit targets are set too loosely, it could trigger rating agency warnings or foreign investor selling. Conversely, a plan demonstrating fiscal consolidation resolve could offer the zloty temporary relief. However, until substantive fiscal improvement signals emerge, the zloty's weak trend is unlikely to reverse.