Clear declines in oil prices, strengthening of the euro and the zloty
The absence of further mutual attacks between Israel and Iran prompted investors to reposition themselves in anticipation of a peace agreement between the USA and Iran. Additionally, according to media reports, D. Trump suggested that the USA has a high chance of reaching a deal with Iran within two to three days. Tehran did not comment on this information, but it was enough to trigger clear declines in oil prices. This indirectly weakened the dollar and supported the currencies of net energy importers, including EUR and PLN.
During the U.S. session, when local stock indices fell sharply, the FX market situation changed – the dollar returned to Monday levels, as did the EURPLN and USDPLN rates.
Thus, EURPLN remained in the middle of the consolidation that has been developing since April 20, which is already advanced. The USDPLN rate, however, returned to the technical resistance zone of 3.6650–3.68.
It is worth noting that the trend picture of the index representing the dollar’s strength (DXY) did not change significantly, and the pullback from Monday and Tuesday appears to be a local correction. In our opinion, this interpretation will remain valid until its rate falls below 99.50 points.
Euro rate – forecast for the coming days
On Wednesday the zloty will remain under the influence of global sentiment and trends, which will be affected by the prospect of signing a peace agreement between the USA and Iran and the reading of May CPI inflation in the United States.
These data could have a significant impact on the Fed’s monetary policy outlook and indirectly on the dollar, negatively correlated with EM currencies.
We assume that by mid‑week EURPLN will stay in consolidation around 4.2450 with a deviation of +/- 1 grosz, and the behavior of USDPLN will depend on the scale of any surprise from the aforementioned U.S. reading.
Yields of domestic SPW
On Tuesday, domestic SPW yields fell by 8–18 basis points. In the 10‑year segment, bond yields dropped by 13 basis points to 5.74%, while on the major markets German Bund yields remained at 3.06%, and U.S. Treasuries fell by 2 basis points to 4.53%.
After sentiment stabilized in the second half of Monday’s session, Tuesday brought a clear improvement in investment sentiment. This shift was especially visible during the Asian session, where the Korean KOSPI index, which lost more than 8% on Monday, recovered those losses on Tuesday.
In the currency market, the improvement in sentiment manifested itself in a capital outflow from the U.S. dollar, which serves as a safe haven, towards riskier assets. Meanwhile, on the interest rate market, the increased appetite for risk benefited the domestically issued treasury debt, which has been over‑valued in recent days.
The SPW yield curve moved downwards by about 15 basis points, clearly outpacing the decline in yields observed on the main base markets. This move was also larger than the drop in IRS rates, which favored the tightening of asset‑swap spreads, which have remained at elevated levels since the outbreak of the conflict in the Middle East.
We assume that the improvement in market sentiment may persist in the coming days. The culminating point of the week could turn out to be the final phase of the largest IPO in history, culminating in SpaceX’s Friday debut on Nasdaq.
Despite yields remaining at elevated levels on the major markets, there is still room for further compression of Polish SPW spreads relative to Bunds and Treasuries, especially in the absence of new treasury supply in the primary market in the coming days.
