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The euro has fallen

The euro has fallen

See how much Polish zloty you can pay for 1 euro in the near future. What about the dollar?

The Dollar rose yesterday, boosted by the US ISM Manufacturing Index. The EUR/USD exchange rate fell from a high near 1.08 and returned to 1.0650. The dollar’s appreciation has been well for the zloty so far. The EUR/Polish zloty is still below 4.60, despite the big disappointment in the Polish PMI. Most likely, investors are still counting on critical increases in NBP rates, and they see high inflation risks.

However, a weak PMI result was evident in the domestic debt market. Despite increases in yields in the core markets, domestic 10-year notes ended yesterday’s trading with the opening approaching.

See also: Exchange rates: inflation frenzy – the dollar and the zloty surprised the Poles, the euro fell again!

The market is waiting for the payroll

Data on the economic situation in the US is already showing weak employment, and Friday’s labor market report will lead to slightly weaker readings, mainly due to the tight labor supply. In our opinion The EUR/USD exchange rate will go back to above 1.07 at the beginning of the week.

In our opinion, in Q3 22, the EUR/USD pair will also remain very close to 1.07. The general condition of the US economy is good and does not stand in the way of further Fed rate hikes. However, the dollar may not return to its lows under 1.04. Fed hikes are largely priced. On the other hand, chances are growing that the ECB’s rate hike path will be a bit faster than what the market is currently pricing in. The European Central Bank is likely to start its cycle slowly, but, for example, rising inflation expectations or a weaker euro are risks highlighted in recent speeches by Governing Council members. Therefore, the chances of the second halving of 22 EUR/USD will be higher than we have assumed so far.

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In core debt markets, expect correction/strength early week. In the US, inflationary risks have temporarily receded into the background, and investors’ attention is focused on speculation about the extent of the economic downturn in the coming quarters. However, we still believe that peak Treasury and Bund yields in this cycle may still be ahead. The increasing burden on valuations will be the Fed’s balance sheet cut and the termination of asset purchases by the European Central Bank (purchases will end before the rate hike in July). We also see a risk that the target level for ECB rates could be higher than the market rate in.

See also: Check how much is the dollar, ruble, pound, franc, yen, koruna, euro and forint

The MPC should strengthen the zloty

At the beginning of the week we expect stability in € / PLN. Technical indicators are not pointing lower in the pair at the moment, and uncertainty about the outlook for the economy only reinforced the weak PMI result. Only near or after the MPC meeting do we see room for a drop below 4.55.

In our opinion, further price increases by NBP and change in the way the currencies are exchanged by the Ministry of Finance justify further decline in EUR/PLZ over the long term. The European Central Bank may start raising interest rates earlier than expected, but its scope will be somewhat limited. At H222, we also assume a further normalization of the situation in the markets, including with a reduction in war tensions. This should be allowed to Returns €/PLN close to 4.50 before the end of the year.

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We continue to evaluate the outlook for TS. Strong inflation pressures suggest the board will raise rates by 100 basis points again, more than the market rate. The rate at the end of the cycle is also likely to be higher. The market also discounted the launch of the KPO and the possibility of a lower supply of debt. so still We believe peak TS returns, particularly in the short term, is still ahead. Moreover, the pace of CPI decline in 2023 may turn out to be lower than current market prices, which, combined with the expansionary fiscal policy of the government, prevent interest rate cuts before 2024.

See also: Things will happen in the currency market!

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