Bernd Berg, Research Analyst at Societe Generale, suggests that as political noise calms down, expect EUR/PLN volatility to fall. Key Quotes “The PLN was one of the worst performing currencies in Eastern Europe in January. Between 1 January and 21 January, EUR/PLN skyrocketed from 4.25 to 4.51 amid increasing tensions between the new Polish government and the EU and the ratings downgrade by S&P. At the same time, volatility exploded from 6.76% to 9.30% currently (EUR/PLN 3M ATM vol). The spike in volatility and the rapid rise in EUR/PLN towards 4.50 were in our view attributable to country-specific news because peers such as EUR/HUF did not see a similar spike in volatility or currency depreciation. As a result, the spread between EUR/PLN ATM 3m implied vol and EUR/HUF 3M ATM implied vol increased to the widest level since 2009, reaching a high of 1.6 vol. We think that this move has gone too far and that the spread will fall back and become negative again as political noise diminishes. Furthermore, we expect more active FX sales from state owned BGK if volatility increases further due to domestic developments or a global financial shock. In our view in a crisis scenario the likelihood of intervention in Poland to reduce EUR/PLN volatility is higher than in Hungary.” For more information, read our latest forex news.