A moderate improvement in sentiment in global capital markets translated into a small narrowing of the dollar premium, which in the domestic FX market resulted in a drop in USDPLN. This move, however, did not change the technical picture of the pair, whose rate remained in the upper part of the support zone 3.74–3.7550.
Similarly, the slight reaction of EURUSD did not change the direction of its trend, which remains bearish in the short and medium term, and the rate is below the key resistance zone 1.14–1.1460.
Euro rate – forecast for the coming days
We expect that in the coming days FX market volatility may increase. This will be aided by a rich calendar of macroeconomic releases that can influence expectations about the path of the main central bank rates, and thus the valuation of the NBP, ECB and Fed rate differentials.
On Tuesday investors will be drawn primarily by preliminary readings of consumer inflation from Germany, France and Italy, important for expectations regarding ECB policy. The market currently prices a rate hike in the euro zone of 25bp by the end of the year. For the NBP rate path, the preliminary CPI reading from Poland for June may be significant.
Despite a rich calendar of US data this week, Tuesday releases should not be key for the market. More important figures, including the ADP report and monthly labour market data, will only be known in the second part of the week.
After Monday's readings, our expectations for FX market trends have not changed and we still see asymmetric risk of maintaining dollar strength, which should favour EURPLN and USDPLN staying near three‑month highs.
Yields of Polish long‑term bonds
Yields of Polish long‑term bonds moved up on Monday, following changes in base market prices. The limited scale of the move and lack of significant macroeconomic information suggest that we were dealing with profit taking, reinforced by rising oil prices.
On Tuesday the focus will be on the publication of inflation in France and Germany. Consensus assumes a rise in the HICP index in June of 2.3% YoY and 2.5% YoY versus 2.8% YoY and 2.7% in the previous month. A decline in inflationary pressure should support bond valuations in Europe. In this context it is worth noting that Monday's HICP reading from Spain, at 3.6% YoY, surprised the market negatively against expectations of 3.4%.
Overall, the decline in energy commodity prices worldwide has led in recent weeks to a correction of inflation expectations in the euro zone, especially in the short horizon. Annual inflation swap rates fell to 2.3%, while in mid‑May they were approaching 4.0%. In longer horizons, derivatives also price a return of inflation to the ECB target. With some lag, these signals should help reduce expectations of rate hikes by the European Central Bank. The market assumes that by the end of 2026 ECB rates will rise by 25bp.
If the upcoming talks between Iran and the USA maintain investors' faith in further de‑escalation of the conflict in the Middle East, the market may gradually abandon the scenario of further tightening monetary policy in the euro zone.
This arrangement of factors generally creates a favourable environment for a potential decline in bond yields in Poland. In the short term, 2‑year yields may test 4.10%, and 10‑year yields 5.30%.
