The National Bank of Poland begins a two-day meeting before the decision

The coming days will be extremely important for both the US dollar and the Polish zloty. A two-day meeting of the Monetary Policy Council begins today and will end with tomorrow's decision on interest rates. In terms of the dollar, they start tomorrow publication of important reports from the labor market, which will be closely watched by council members FOMC from the Fed.

'Jastrzębia' communication from the President of the NBP

In the first part of the day, the zloty lost between 0,00% and -0,10% against most currencies of the G10 countries. Around 10:00 a.m. on Tuesday, the euro costs PLN 4,32, the dollar PLN 3,98, the franc PLN 4,50, and the pound PLN 5,05. The coming two days will be important for our currency due to the decision on interest rates, which will be published tomorrow. Today, the two-day MPC meeting begins. Consensus assumes keeping interest rates unchanged, and analysts are quite unanimous on this issue. The communication of the MPC president, Adam Glapiński, has been hawkish since the end of last year and this case should be no different. Such rhetoric can be used as an argument for the strengthening of the zloty, at least temporarily.

The MPC's decision itself is practically certain, so investors' attention will be focused on forecasts for the rest of 2024 and March inflation projections. The market expects that this year NBP will not be so willing to reduce interest rates, and the reductions may be limited to only 25 bp. Despite the falling inflation dynamics, the projections will most likely assume a rebound in inflation from the second quarter of this year. According to Adam Glapiński inflation in March may even come close to the NBP target. However, the next months are burdened with high risk, including government changes in the area of ​​anti-inflation shields. For this reason, the hawkish attitude of the MPC president may support the zloty rates this week.

A one-off break from the trend?

Meanwhile, the US dollar (USD) may also experience more volatility in the coming days. Tomorrow, the publication of important labor market reports in the US will begin, including the ADP and NFP reports. A big surprise in January was the reason for the sudden strengthening of the USD. According to Fed bankers, the strong labor market data for January was a one-off break from the trend. Therefore, if this week's data show a return to the trend from the end of 2023, it will most likely be perceived dovishly by the market. In such a scenario the dollar may come under downward pressure. In turn, a much more hawkish scenario is strong data from the labor market, which will again postpone expectations of the first interest rate cuts by the Fed.

Source: Bartłomiej Mętrak, XTB