The global monetary cycle is shifting to easing

The first quarter passed in great spirits on global markets. This was not prevented by two inflation reports from the US, which were not as good as investors expected. Will it be different this time? Although inflation is no longer such a problem as it was a year ago, it is still the most important publication for the market.

Easing in the monetary cycle

The global monetary cycle is slowly shifting to easing. Apart from the Bank of Japan, which is difficult to include at all, Bank of Switzerland has already given the signal to start with an unexpected reduction in interest rates. In the USA, we will have to wait a little longer for the first cut, but it is getting closer. How close? This will depend mainly on inflation data. Data for January and February showed a less-than-ideal picture, but Fed Chairman Jerome Powell maintains that this does not change the council's belief that inflation is on track to target and that it just needs to be sure that this is the case to begin the process of reductions. Will March data show this?

The report will be very interesting for several reasons. Prices are rising strongly again oil, and this translates into an increase in fuel prices, although of course to an incomparably smaller extent than two years ago. On the other hand, we see a strong price correction in the car market, and rental price inflation (a significant part of core inflation in the US) should continue to decline. Another factor may determine the receipt of data, namely the prices of services without counting rental prices. Here, inflation has rebounded in recent months, but the March ISM survey showed a significant decline in price pressure. If hard data now confirms this, The Fed will have an argument for starting cuts in the near future. If the next report is inconclusive, expectations may even be postponed to September.

Everything favors the zloty

This is of great importance for the broad market, because so far the data have not affected the mood. Postponing the cuts could have such an effect and at the same time be a potential problem for the zloty. Let us pay attention to the fact that currently the Polish zloty is supported by both the mood on global markets and the fact that the Monetary Policy Council maintains quite high rates and is a signal of the lack of willingness to change this state of affairs. However, if the Fed did not cut rates in the coming months, this argument would no longer apply.

At 8:55 a.m. on Monday, the euro costs PLN 4,29, the dollar is PLN 3,96, the franc is PLN 4,38, and the pound is PLN 5.

Source: Dr. Przemysław Kwiecień CFA, XTB