Middle East Conflict: Oil Prices and EUR/USD Rates
After Monday’s rise in crude oil prices (which, during supply shocks, are negatively correlated with the strength of the PLN and EUR), driven by reports of a possible breakdown in peace talks between the USA and Iran, Tuesday brought no new significant developments on the matter.
According to the media, the positions of the parties have not changed. The USA reports that talks with Iran are ongoing and may proceed.
Iran, on the other hand, cites a suspension due to Israeli actions in Lebanon, which it interprets as a serious breach of the ceasefire in place since April 8.
Conflicting signals did not favor a clear de‑escalation of geopolitical tension, and markets responded to the fragile balance by waiting for new impulses in local consolidations. Apart from geopolitics, the locally aligned RPP decision met market expectations and had no impact on the PLN’s behavior.
Globally, macro readings from the USA (JOLTS report) and the eurozone (HICP inflation) balanced out, increasing the chances of tightening monetary policy by both the Fed and the ECB, which supported consolidation on EURUSD.
Euro Rate – Forecast for the Next Hours and Days
In our view, the message from Wednesday’s NBP chairman A. Glapiński’s conference should be neutral for the zloty, and the domestic currency will remain influenced by trends from base markets and global sentiment. These will shape the further development of events in the Middle East and the release of macroeconomic data from the eurozone and the USA.
Assuming no major changes in the geopolitical environment and consensus‑like macro readings from base markets, we assess that local sideways trends on EURPLN and USDPLN will continue on Wednesday, respectively within the ranges 4.2350‑4.2450 and 3.63‑3.65.
Domestic SPW Yields
On Tuesday, domestic SPW yields ranged from -4 to +3 basis points. In the 10‑year segment, bond yields fell by 4 basis points to 5.69%, while on base markets German Bunds and U.S. Treasuries fell by 2‑4 basis points, respectively to 2.97% and 4.46%.
The most important event for the domestic market was the decision‑making meeting of the Monetary Policy Council. As expected, the RPP kept the reference rate unchanged at 3.75%.
In the context of uncertainty generated for the global and domestic economy by the unresolved conflict in the Middle East, a key argument in favor of such a decision remains the favorable domestic inflation reading, which according to May data was 3.1%. The data released on Tuesday from the eurozone confirmed market expectations of inflation rising to 3.2%.
The interest‑rate market reacted only minimally to such inflation data, but given the ECB’s mandate to bring inflation to the 2% target, the latest reading strengthens arguments for a rate hike at the June central bank meeting.
The main directional catalyst for changes in the global interest‑rate market remains the development of the geopolitical situation in the Middle East. On Tuesday, the market showed moderate investor optimism that an agreement between the USA and Iran remains possible despite temporary disruptions in negotiations related to the escalation of tensions between Israel and Lebanon. These expectations were reflected in stable oil prices and no pressure on bond yield increases in the global market.
We expect that on Wednesday both base markets and the domestic SPW market will be dominated by a sideways trend, and yields will not deviate significantly from levels observed at Tuesday’s close.
