Worsening Landscape
Yesterday's U.S. releases should at least draw the attention of the president of the world's largest economy, who is currently in Beijing. Following a jump in U.S. consumer inflation, we received an even higher rise in producer prices. PPI inflation was expected to climb from 4.3% YoY to 4.9% YoY.
The reading came in at 6% YoY and is not the only figure that should make one think. Core PPI (excluding energy and food) was 5.2% YoY, while consensus predicted a change from 4% YoY to 4.3% YoY. The translation of these surprising increases cannot be softened by a monthly comparison, as there were also notable hikes.
Producer prices compared to March levels rose 1.4%, even though 0.5% was expected. Is that the end of bad news? No. Later in the afternoon we learned about weekly changes in fuel inventories. Despite the expected slowdown in the decline of oil reserves from -2.31 million barrels to -1.6 million barrels and the maintenance of -2.5 million barrels of gasoline, the latest report clearly surprised on the downside, indicating -4.3 million barrels and almost -4.1 million barrels respectively.
Warsch Test
It must be admitted that the moment of taking office by the new Fed Chair is not the happiest. Consumer and producer prices appear to be slipping out of control. Three‑digit oil prices do not inspire optimism, and fuel reserves are falling despite increased U.S. production.
In addition, the president’s expectations, who, unlike his predecessor, did not hesitate to either defame, threaten with a lawsuit, or launch a federal investigation into the costs of renovating the Fed headquarters, are high. Although Kevin Warsch, during hearings, pledged to stand guard over the Federal Reserve’s independence, the real test will come during the first FOMC meetings. Today we know that the U.S. Senate voted for his nomination by a margin of 54 to 45.
Will Kevin prove less decisive than his predecessor? In my opinion, that is the question markets ask themselves today, which, besides awaiting the results of the Beijing meetings, limits the dollar’s strengthening, which should at least gain from yesterday’s inflation data. Since yesterday, the EUR/USD rate cannot permanently break the 1.17 USD support, staying above that level into Thursday afternoon.
Return of the PLN
Today the zloty continues to recover losses from the beginning of the week.
The EUR/PLN rate returns below 4.24 PLN, USD/PLN is 3.62 PLN, GBP/PLN hovers around 4.89 PLN, and CHF/PLN is 4.63 PLN.
The strengthening of the domestic currency does not disturb the mild decline in GDP. According to preliminary data, in Q1 2026 the domestic economy grew at 3.4% YoY (previously 3.7% YoY) and 0.5% QoQ (previously 1% QoQ).
Discounts, though noticeable, still leave growth dynamics at decent levels, especially when compared to other EU countries. Additionally, the domestic currency is supported by a hawkish narrative from the RPP, whose next member indicated a higher probability of a rate hike than a cut by year‑end.
This, among other reasons, keeps the PLN strong even against the pound, backed by solid data.
In the Islands, despite a forecasted decline, GDP rose in March from 1% YoY to 1.2% YoY. Moreover, industrial processing returned to positive levels. The best data, however, do not help the British currency, which is clearly weighed down by policy this week.
The disappointing result of the Labour Party in local elections calls into question the stability of Prime Minister Starmer’s government.
