EUR/USD above 1,09 and stock markets up again. Another cautious step by the ECB

ECB President Christine Lagarde yesterday took another cautious step towards the first interest rate cut. She mentioned June as a possible date, but she was cautious about the pace of future monetary easing. Powell, in turn, during his second day of testimony in Congress, admitted that the Fed is close to achieving certainty that will allow it to begin a cycle of easing monetary conditions.

The EUR/USD rate reacted to the ECB's decision itself by falling to 1,0860 and then moved in the opposite direction to 1,0950. Dax gained 0,7 percent, Nasdaq Composite 1,5 percent, Sp500 increased by 1 percent. and the Dow Jones ended the day with a positive result of 0,3%. Today the attention shifts to the NFP report.

Has the inflation problem been solved?

In its statement, the ECB reiterated its view that the current level of key interest rates, if maintained "for a sufficient period of time", would bring inflation back to the 2% target in the longer term. Moreover, ECB President Lagarde suggested for the first time that EBC believes that the first interest rate cut in June is possible. She said the ECB would have more data at its April meeting and much more in June to decide whether the inflation problem was resolved in the long run.

Regarding the pace of potential rate cuts, Lagarde remained cautious and stressed that future decisions will depend on data. New inflation and GDP projections have been revised downwards. The price growth dynamics is expected to amount to 2024% on average in 2,6. and in 2025 2,1 percent. Economic growth this year is expected to reach 0,6%. and in subsequent years 1,5 percent. and 1,6 percent Lagarde admitted that the ECB would not wait with cuts until the bank's target is achieved.

Powell made it clear during testimony before the Senate Banking Committee that the Fed is close to being confident that inflation is steadily moving toward the central bank's target. This is a key condition for starting to cut the cost of money. This statement is not groundbreaking, but it also resulted in a weakening of the US dollar, increases in stock indices and decreases in profitability on the debt market.

The National Bank of Poland is satisfied with the strength of the zloty

On Thursday, we also received a press conference from the President of the National Bank of Poland. At the beginning it was emphasized that the inflation target was achieved but at the same time, Glapiński emphasized that maintaining rates at a restrictive level results from many uncertainty factors, which include further government actions regarding anti-inflation shields. A graph of inflation projection was presented in two scenarios: the first assumes the extension of protective measures (VAT on food, energy prices) and the second assumes their withdrawal. In the first option, according to the bank's forecasts, inflation in the second half of the year may increase to around 8%.. In both options, the price growth dynamics is expected to reach a value close to the target within the forecast horizon.

The National Bank of Poland is pleased with the strong appreciation of the Polish zloty, and according to the bank, the strength of the Polish zloty is due to, among others, from the solid foundations of the Polish economy. Glapiński also emphasized that possible actions of the Fed and the ECB (cuts) in mid-year will not in any way determine the Monetary Policy Council to decide to ease monetary conditions more quickly. The zloty remained strong yesterday and this morning we see a slight weakening of our currency. EUR/PLN is approaching 4,31 and USD/PLN is at 3,94.

Source: Łukasz Zembik, OANDA TMS Brokers