Eurodollar on the brink of a 1.13 test
Nevertheless, in our assessment there is still room for the EUR/USD to decline and the probability of testing the 1.1300 level is high. If the correction develops, the first short‑term target is 1.1384. The development of the situation during today’s session may be defined by the May PCE inflation, important from the Fed’s perspective.
If a negative surprise appears, it could support further declines in the EUR/USD. Eurodollar moves may dictate the behavior of the zloty today, given the lack of new domestic data and the fairly high (negative) correlation between the zloty and the dollar in recent days.
In the morning the rate EUR/PLN was 4.2880, and USD/PLN – 3.7740.
Potential support for the zloty and domestic assets could be the continuation of the calming of sentiment in energy commodity markets, related to the progress of peace negotiations between the U.S. and Iran.
Commodities (oil) and the bond market
Brent crude oil is priced at 72.67 USD per barrel, the same as on February 27, i.e., just before the U.S. and Israel attack on Iran. TTF natural gas has not yet fully recovered from the “war” gains, but its price also remains at a moderate level (41.19 EUR per MWh), despite a raging heatwave in Europe.
In this situation, and taking into account yesterday’s declines in yields on primary markets, Polish debt may perform well today.
After a sell‑off in U.S. equity markets the day before, yesterday’s session saw domestic equity indices fall by about 1.0‑2.5%. The zloty gradually lost value from about 4.28 to about 4.292, i.e., the highest levels since the turn of March and April. Other regional currencies also lost value. This is partly due to the persistent risk aversion amid the unexplained situation in the Middle East.
On the domestic debt market, domestic rates fell by about 6 and about 11 basis points for long‑term rates. The decline was not harmed by the auction or strong increases in new orders in industry in May (143.3% YoY, 135.1% MoM) thanks to military orders from SAFE.
New export orders in industry rose by 6.2% YoY after a 0.6% decline. The day’s event was the bond auction. The Ministry of Finance sold bonds of series OK0129, NZ0331, PS0731, DS1035, DS0436 and NZ0936 for a total of 12.0 billion PLN against an initial supply of 7‑12 billion PLN, with demand of 15.4 billion PLN, giving a respectable demand‑to‑sale ratio of about 1.28.
The highest bid‑to‑cover was recorded for bonds NZ0331. The Ministry of Finance sold additional bonds of series OK0129, NZ0331, PS0731, DS0436 and NZ0936 for a total of 1.3 billion PLN. After yesterday’s bond sale and additional sale, the gross financing need for 2026 at 688 billion PLN is about 62%.
Bond yields rose in the first part of the day, but in the afternoon they strengthened and by the end of the day yields were only slightly below Tuesday’s close (about 5.40%).
The dollar is pushing the euro and falling to 2025 levels
On international equity markets, index changes were mixed (a slight drop in the DAX –0.8% and a rise in the FTSE of about 0.3%). German losses were due to weaker performance of the arms sector after Germany decided to end the new frigate construction project. U.S. contracts rose after Tuesday’s tech sector sell‑off. Iran announced it would address nuclear facility access only within the final agreement. MAEA inspectors are set to resume inspections of Iran’s nuclear facilities.
The EUR/USD rate broke a significant support level around 1.14 already in the Tuesday session, and yesterday the dollar’s strength continued to the lowest EUR/USD level since May 2025.
The dollar gained against the widening spread between U.S. and German bond yields, continuing the trend initiated by the relatively hawkish Fed meeting last week, despite weaker U.S. data. New home sales in the U.S. in May were 580 thousand on an annual basis (+7.3% MoM), versus expected 640 thousand (-5.7%) versus 626 thousand in the previous month, after a correction from 622 thousand.
Base market bond yields strengthened, helped by slightly weaker U.S. data and declines in oil prices to the lowest level in four months, i.e., the end of February when the U.S.–Iran conflict began.
U.S. Treasury yields fell by about 5‑8 basis points, and German Bunds by about 3‑5 basis points. At the end of the day, 10‑year German bond yields were at 2.87% and U.S. ones near 4.40%.
