The financial markets are awaiting the upcoming decision of the European Central Bank.
EBC in a "wait and see" mode
Although investors are starting to adopt hawkish moods, UBS analysts keep emotions in check.
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According to experts, the ECB will keep interest rates unchanged this week.
Inflation outlook has clearly worsened in the face of escalating tensions in the Middle East and a sudden rise in energy prices. Because the ECB assesses inflation risk as leaning towards growth, and short‑term normalization prospects in energy markets are limited, rate hikes later seem more likely than their absence.
However, we do not see an urgent need for action by the Governing Council (GC), given the favorable pre‑shock inflation picture, only modest rise in long‑term inflation expectations, and rates at a basically neutral level.
It is worth noting that UBS experts expect rate hikes in June and September.
They predict the ECB will raise the deposit rate by a total of 50 basis points.
Source: Trading Economics.
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The euro‑to‑dollar pair fights for a jump above 1.17 USD
The EUR/USD chart shows a classic "pivot point", meaning the level 1.17 USD has become a line in the sand for traders. If the euro fails to hold this support, AI‑based trading algorithms could push the rate into lower territory.
This would be a rather painful situation for euro‑zone importers. Current stability stems from the fact that the market has already priced and prepared for a scenario of hawkish anticipation.
The dollar remains a safe haven, and uncertainty in the Middle East creates strong downward pressure on the main currency pair. If the ECB in June actually approves a 25‑basis‑point rate hike, as UBS mentions, the rate could successfully rebound to the side of 1.20 USD.
Until then, the level 1.17 remains a kind of status‑quo and waiting for further ECB decisions as well as geopolitical events. Every news about oil prices breaking new barriers will hit the euro’s valuation.
For this reason, the EUR/USD pair will be exceptionally sensitive to all geopolitical noise.
Chart. Euro to dollar (EUR/USD)
Source: Trading Economics.
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The euro to zloty in the midst of global sentiment downturn
The Polish currency, despite local turbulence, shows impressive resilience, oscillating between 4.24-4.25 PLN.
However, this does not change the fact that what happens to the EUR/USD pair directly affects PLN’s condition. When the USD gains strength globally, emerging market currencies (including PLN) usually come under pressure.
Polish investors must consider that a lack of movement from the ECB in the coming week may calm trading in the EUR/PLN pair, but only temporarily.
If the UBS scenario of two rate hikes in the euro zone materializes, the zloty could lose attractiveness against the euro. This would be due to a narrowing interest‑rate differential, unless our RPP responds with a similar move.
Chart. Euro to zloty (EUR/PLN)
Source: Trading Economics.
See also: Dollar before "nervous and dynamic" move, euro waiting for a drop? Expert released forecast for USD/PLN and EUR/USD
