- In such an environment the zloty strengthened against major currencies — EURPLN moved closer to the lower end of the 4.22–4.26 consolidation range, and USDPLN fell to around 3.63. Support for the PLN also came from strong gains in European equity indices and a new historic peak for the WIG.
On the domestic debt market, SPW yields fell by 8–10 basis points, with a parallel 8‑point drop in German Bund yields. On Tuesday we expect zloty and SPW levels to remain driven by the US–Iran talks and changes in energy commodity prices.
Maintaining expectations of de‑escalation should further strengthen net‑energy‑importer currencies, with the possibility of EURPLN moving toward 4.22 and USDPLN toward 3.60, and the opening of the US market after a long weekend could give an additional downward push to yields. The key risk for this scenario remains a sudden collapse of peace talks and a renewed rise in geopolitical risk premium in oil prices.
- Today in the US spotlight will be the Conference Board Consumer Confidence Index. Expectations point to a possible worsening of sentiment in May, in line with the trend observed in the University of Michigan Consumer Sentiment Survey. Further on the agenda will be US real estate price data for March.
- In Europe attention will focus on the National Bank of Hungary’s meeting. We expect, in line with consensus, that the base rate will remain unchanged at 6.25%. In light of the war situation in the Persian Gulf, the MNB communicates the need for a cautious and patient monetary policy approach, although conditions in financial markets improved markedly after parliamentary elections.
- In Poland, GUS will publish the Statistical Bulletin, including data on the April unemployment rate, which, according to MRPiPS estimates, fell to 6.0% from 6.1% in March.
The zloty strengthened against the euro and dollar
On Monday the zloty strengthened against the euro and dollar, respectively near 4.23 for EURPLN and 3.63 for USDPLN. In base FX markets, a weaker dollar translated into a rise in EURUSD to around 1.1640.
Strong equity gains in Europe support the zloty
The zloty’s strengthening was the result of a clear improvement in global investment sentiment, stemming from increased expectations of a peace agreement between the US and Iran and the accompanying drop in Brent crude prices below USD 100/bbl.
Falling oil and the associated decline in inflation expectations, in turn, led to a drop in global bond yields and a weakening dollar, negatively correlated with EM currency strength. Additional support for the zloty came from strong equity gains in Europe and a new historic peak for Warsaw’s WIG.
Domestic currency appreciation was not halted by slightly weaker-than‑expected data on April retail sales in Poland, as the decline in momentum was mainly due to a high March base linked to the Easter calendar. As a result, the EURPLN moved closer to the lower end of the 4.22–4.26 consolidation range, and USDPLN moved away from the local resistance zone of 3.65–3.68.
Euro rate – forecast for the coming days
Tuesday’s Polish unemployment data should not have a noticeable impact on zloty levels, which will remain dominated by external conditions. Global market sentiment will shape the further course of US–Iran negotiations and the accompanying changes in oil and gas prices. Likely only a limited impact on dollar levels will come from the May reading of the US consumer sentiment index.
Persistent expectations of a quick peace agreement in the Middle East will likely continue to support net‑energy‑importer currencies, including Poland, which should, in our view, pull the EURPLN down toward 4.22 and USDPLN toward 3.60.
Bond yield decline
On Monday, domestic SPW yields fell by 8–10 basis points. In the 10‑year segment, yield fell by 10 basis points to 5.78%, while on base markets German Bund yields fell by 8 basis points to 2.95%. The US market remained closed on Monday due to Memorial Day.
Another day in a row, the interest rate market maintained a positive sentiment. According to the logic that has prevailed since the start of the Iran war, it remains strongly linked to oil price dynamics. On Monday there was a clear breakthrough — Brent crude fell below USD 100/bbl.
Improving debt market prospects were also visible in the inflation swap market, which since mid‑last week indicates a decline in inflation expectations across the curve.
US‑Iran talks and weak Polish data weigh on yields
The catalyst for these changes is the evolution of the tone of reports on US‑Iran peace talks. Over the weekend a more positive and converging narrative from both sides emerged regarding the progress of negotiations, whose potential effect would be the opening of the Strait of Hormuz. The market reaction to these reports remained incomplete on Monday due to holidays in the US and the UK — two key centers of the global financial market.
Strong yield declines across the entire curve reacted to the German market. The domestic SPW market, in addition to improving prospects for the energy commodity market, also discounted a weaker‑than‑expected reading of April retail sales, which in constant‑price terms clearly disappointed.
On Tuesday, the opening of the US market after a long weekend could give a new downward push to yields. The risk for this scenario remains a sudden collapse of peace talks against persistent fundamental divergences between the conflict parties.
