The Friday dip on Wall Street was mainly caused by very strong data from the U.S. labor market.
EBC watches the Fed and U.S. labor market data
Investors were alarmed by the hawkish mood of the Fed and the associated interest rate hikes. Frankfurt is closely monitoring news from across the Atlantic, as the EBC Governing Council meets on Thursday to decide on euro‑area interest rates.
The EBC decision will be supported not only by the situation overseas but primarily by inflation in EU member states. Although the base scenario assumes a 25‑basis‑point hike, any deviation from this decision will affect not only the market but also the euro’s exchange rate.
Chart. Euro‑area interest rates
Source: Trading Economics.
See also: One decision could decide the fate of EUR/USD. Here are the most important events of the coming week!
EUR/USD under pressure. Will the EBC curb the Fed’s hawkish pressure?
The common currency has entered a deep defense, and the EUR/USD pair has suffered a painful dip. The world of finance and technology is now turning its attention to Frankfurt. Pressure on the 1.1500 level is rising, and bears are trying to play the game to their advantage.
The EBC must react decisively to stop the euro’s depreciation. A 25‑basis‑point hike of the deposit rate to 2.25% is expected. The market, however, is counting on aggressive rhetoric from Christine Lagarde.
As analysts at ING Think note in their latest report:
“The USD enjoys broad support. Bear flattening of the U.S. yield curve when the market prices tightening by the Fed, and the sell‑off of high‑risk assets driven by the tech sector, are the main culprits of this move. We believe these two factors will continue to dominate the week when we will see the U.S. CPI reading for May on Wednesday, and on Friday an IPO of SpaceX is likely.”
The EBC therefore faces a daunting task. Christine Lagarde must sound hawkish and announce another move in September. On the other hand, the euro‑area economy is sending warning signals. Weak data on orders in German factories for April show that industry is catching its breath after a period of intense inventory buildup.
With a renewed rise in energy prices, a return of EUR/USD higher will require an offensive play. If the EBC disappoints with a too‑conservative tone, support in the 1.1400‑1.1500 range will break, opening the way to further summer declines.
Chart. Euro to dollar (EUR/USD)
Source: Trading Economics.
See also: Dollar rate in the heat of uncertainty. Expert: “It is impossible to completely rule out conflict escalation and a return to bombings.”
EUR/PLN in the heat of volatility. The zloty on the digital front against the USD
Global risk‑aversion is hitting emerging markets with the force of a storm breaking the main gate, and the Polish zloty is becoming highly vulnerable to such shocks.
The EUR/PLN pair is currently entering a turbulence phase, as markets play for the highest rate and the tech correction drains liquidity, causing foreign capital to flee to safe havens.
Our region is treated by investors as a high‑risk zone.
The EBC decision will be crucial for the zloty’s valuation. A hawkish statement that strengthens the euro on the international stage could bring relief to the zloty, stabilizing sentiment in the Old Continent.
However, if the EBC fails to meet lofty expectations and U.S. CPI inflation data on Wednesday turn out higher than forecasts, fueling appetite for the Fed’s hawk, the zloty will face powerful bears.
The EUR/PLN rate is currently moving slightly up (+0.1%) at 4,24 PLN.
Chart. Euro to zloty (EUR/PLN)
Source: Trading Economics.
See also: Euro rate changes direction. The EBC could shake EUR/PLN and EUR/USD.
Source: ING Think.
