The zloty is waiting for the ECB and data from the US. Euro exchange rate in consolidation, dollar exchange rate in correction

The zloty exchange rate still seems to be strongly influenced by the yield of American bonds and sentiment towards emerging markets, as it significantly correlates, for example, with the Mexican peso. Therefore, domestic factors seem to have little impact on the zloty exchange rate, but international factors may dominate until the end of the week. We are talking primarily about the ECB's decision and data from the USA regarding GDP and PCE inflation.

Expectations for the ECB and the euro exchange rate

Markets currently assume that EBC will cut rates four times this year by 25 basis points each, starting in June, although based on the data, we could get one cut as early as April. This contrasts with the market forecast of up to six rate cuts by Federal Reserve, even though the American economy is much stronger than the European one.

However, no changes are expected today and the ECB's refinancing rate is likely to remain at its current level of 4,5%, but Q1 GDP data due next week and the January CPI due on February 6 could mean that calls for a rate cut in March/April will become louder in the coming weeks, especially as PPI has been in deflation for the last XNUMX months.

At the moment, the lack of interest rate cuts in the euro zone may keep the euro exchange rate at a higher level and thus the EUR/PLN rate may still reach around 4,40. Nevertheless, the chances of a rate cut in Poland have also decreased RPP, which may balance the valuation effect of the ECB's activities and thus stabilize the quotations. Hence, at the moment the euro exchange rate may move in a sideways trend between PLN 4,40 and 4,30.

The impact of US bonds on the zloty exchange rate

US bond markets appear to have doubts about the prospect of six rate cuts by the Federal Reserve this year, although there is still some confidence that a March cut remains a real possibility.

This seems quite counterintuitive when we think that the Fed could cut rates before the ECB, when Europe is likely in recession and the US economy is growing at a reasonable pace, albeit slower than in Q1,9. Expectations for the fourth quarter are for the economy to slow to 2% to 2023%, which would be or match the weakest quarter of XNUMX.

Still, the resilience of the American consumer has been at the forefront of the rebound in U.S. economic growth over the past 12 months, with a strong end to the year in terms of consumer spending. This is quite at odds with the idea that US GDP growth could be revised downwards in the coming weeks, as some have argued. If we look at the December retail sales numbers, they finished the year strong and these numbers are counted towards the overall GDP.

The consensus indicates that the quarterly core PCE price index will slow from 3,3% in Q2 to around 2%, which may not be enough to moderate yields unless we fall below XNUMX%.

The yield on 10-year US bonds returned after two days of correction to 4,17% from 4,08% and is close to the highest level since the first half of December 2023. High yields do not seem to help the USD/PLN pair, which is strongly related to them. correlates. Therefore, only a decline in profitability in the US, which may occur with milder GDP or PCE data, may contribute to the dollar falling below PLN 4 again. Otherwise, an increase to 4,10 would be possible. Therefore, everything depends on the data that we will know today and tomorrow.