PLN strong after the decision of the Monetary Policy Council

The Polish zloty starts the next week in good shape. It was supported by the recent decision of the Monetary Policy Council and global conditions. This week we are waiting primarily for January inflation data from the USA.

Cuts not very realistic

Interest rates in Poland may remain unchanged even until the end of the year - this is the message valid after the last meeting of the Monetary Policy Council. Of course, the cut was not expected, but the market wanted to find out how realistic the cuts are in the coming months. The president's response? Not very realistic. It is true that the beginning of the year should bring further decline in inflation and perhaps in March it will even return to the corridor of acceptable deviations around the target (2,5% +/- 1 percentage point), but this will be a temporary return - the following months will bring its increase and this is one of the reasons for the Council's current attitude.

This is of course a favorable factor for the zloty, but it may be more important for our currency moods on global markets. These remain extremely strong, especially on Wall Street, where major indexes have been hitting all-time highs almost daily lately. A possible deeper correction may also mean pressure on the zloty, although the EUR/PLN pair remains in a very consistent downward trend at the moment.

Increased inflation pressure

All eyes this week will be on the January inflation data from the US, which will be released tomorrow (14:30 p.m.). Looking at inflation trends, the next few months look really good: fuel and used car prices should continue to fall, and rent inflation should gradually decline. What may worry the Fed is the persistence of elevated inflation pressure in services, which was also indicated by a significant increase in the price component in the ISM services for January. Moreover, these are data for January, so if there were to be any "beginning of the year" effect, it would probably be in this publication.

Overall, it will be a week of numerous publications from the USA, where we will also receive data on sales, production, producer prices, as well as the first regional activity indicators for February. In turn, things should be calmer in Asia, where the New Year is celebrated.

At 9:10 a.m. on Monday, the euro costs PLN 4,33, the dollar PLN 4,01, the franc PLN 4,59, and the pound PLN 5,07.

Source: Dr. Przemysław Kwiecień CFA, XTB