Decisions of the ECB, the Monetary Policy Council and Powell's speech in Congress

It's going to be a really interesting week in monetary policy. Decisions on interest rates will be made by banks in the euro zone, Canada and Poland. The Fed chairman's speeches in Congress may attract even more attention. Will this be the impulse the currency markets are waiting for?

Waiting for central bank projections

The beginning of the year on the currency markets is quite calm, especially in the context of what is happening around. On Wall Street, we have a series of new records based on the fascination with artificial intelligence and expectations of interest rate cuts. On the cryptocurrency market, the emergence of Bitcoin ETFs also resulted in strong price increases. Even gold market was roused from his torpor on Friday and the price soared close to records. In these circumstances, currencies are downright boring. The EUR/USD pair is stuck around 1,08 and, as a consequence, not much is happening on the zloty market, where the EUR/PLN pair cannot break below the level of 4,30. Market euphoria is usually accompanied by a weak dollar, but a fairly good start to the year in the American economy and at the same time weaker data from Europe worked in favor of the American currency, leaving the EUR/USD pair in a bind.

Can this week make a difference? There will be too many signals, although in my opinion bankers will try to maintain the status quo. The ECB quite clearly outlined the prospect of a June rate cut, even though in December the markets expected both EBC and the Fed is lowering interest rates already in March. March is the month when projections are published, so perhaps this will be the basis for a clearer crystallisation of the June date. However, the ECB has recently liked to look at what the Fed is doing and react, this time must decide first (although Lagarde will be able to look at the script of Powell's speech to Congress on Wednesday). This decision will be made on Thursday at 14:15 p.m.

Has the fight against inflation been won?

Powell presents the economic situation to congressional committees every six months, and these testimony will take place on Wednesday and Thursday at 6:16 p.m. our time. At its January meeting, the Fed somewhat cooled expectations for a quick rate cut, indicating that it wanted to make sure the fight against inflation had been won. Since then, we have learned the inflation data and the labor market report, which did not add to this certainty (higher inflation and wage growth), but on the other hand weaker sales data and weak ISM for February. It therefore seems that Powell will want to maintain the unchanged narrative at least until the release of inflation data for February. Friday's labor market data may have a greater impact on the market. If the next report was as strong as January's, imminent rate cuts would be more questionable.

The MPC's decision (Wednesday) seems even more predictable because President Glapiński has been here for some time dispels hopes for rate cuts. Could good January inflation data have changed this? In my opinion, no, but we will learn more from the president at Thursday's conference. At 8:50 a.m. on Monday, the euro costs PLN 4,32, the dollar PLN 3,98, the franc PLN 4,52, and the pound PLN 5,04.

Source: Dr. Przemysław Kwiecień CFA, XTB