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We consider the tone of Chairman Glabinski's veiled statements to be rather hawkish – and we see no chance of lowering interest rates earlier than the second quarter. The market is beginning to have increasing doubts about whether the size of the cuts this year will be significant. The winner in this case may be the zloty if the lack of devaluations leads to higher currency pressure.
What has attracted attention in the currency markets is the unusually low volatility. Almost all major currencies ended the week with a movement of no more than 0.5% since the beginning of the week, which is unusual. Higher than expected CPI (consumer) inflation in the United States It initially caused confusion and supported a rise in the value of the dollar. However, before the end of the week, interest rates had returned to somewhat normalize, as markets returned to pricing in the 80% interest rate cut by the Fed in March after a lower-than-expected PPI inflation reading on Friday. This also led to a decrease in the yield on Treasury bonds and an increase in risky assets.
This week will be quite quiet in terms of macroeconomic readings and central bank data, but there will be several speeches by ECB and Fed officials. Speeches by Fed representatives will be of particular interest – we will see if the bank will continue to postpone market expectations regarding the March interest rate cut and 165 basis points. Cuts in 2024. In our opinion, they are very aggressive. As for this week's data, which is still ahead of us, the most important will be December Inflation in the United Kingdom (Wednesday 01/17).
See also: Currency rates 01/16: Huge changes!
The zloty continued its weak decline last week. The EUR/PLN exchange rate was just above 4.35 on Friday, which has become an increasingly stable reference point for the pair. As expected, the Monetary Policy Board did not change interest rates on the National Bank of Japan. President Adam Glabinski He implicitly suggested that no cuts should be expected in the first quarter of the year, and emphasized uncertainty in the context of inflation changes in the second half of 2024. Investors have growing doubts about the scale of policy easing, and some economists believe that the bank will leave interest rates unchanged until the end of the year. General. We continue to believe there are signs of some policy easing in 2024, but rising uncertainty in the context of inflation makes accurate forecasts more difficult. This situation represents an opportunity for the zloty – the lack of cuts in national interest rates may put pressure on the currency's appreciation.
Among the overall data, the most important data last week were those related to the current account. The surplus of 1.3 billion euros in November was slightly lower than expected, but its total increased over the 12 months. Further surpluses are good news for the zloty and support the belief that the Polish currency will remain strong.
This week we will focus on price dynamics. We started with a slight upward revision in December CPI inflation (from 6.1% to 6.2%). Its core measure will be published on Tuesday (16/01), and the producer price index on Friday (19/01). The fate of the Polish zloty However, it will depend largely on news from outside the country.
See also: Polish Economy 2024. How strong is the Polish Zloty? How much is the euro EUR? Check the forecasts of market experts
Economic data from the Eurozone has not improved significantly and continues to show stagnation, but this has not yet translated into layoffs and employment remains at a good level. Last week's retail sales reading was slightly better than expected, but turned negative year over year (-1.1%), marking the fourth monthly decline in the past five months.
The hawkishness that emerged at the ECB meeting in December is slowly disappearing amid the dovish voices of many Council members. The November industrial production reading earlier this week was disappointing, showing a decline of 6.8% year over year. Several speeches by bank officials are scheduled in the coming days, including a speech by the president Christine Lagarde On Wednesday (01/17), the picture is supposed to be clear in the context of the European Central Bank’s plans. The minutes of the bank's latest meeting published on Tuesday (16/01) will also shed some light on the December announcements.
See also: Dark clouds over the Euro (EUR), Dollar (USD) and British Pound (GBP)
The slight upward surprise in the December CPI inflation reading did not convince markets to adjust their expectations Federal Reserve interest rate cuts Already in March. Momentum for the most important fundamental measure of price growth appears to be stabilizing at just under 4%, which is too high – and the final straight line in the battle against inflation may turn out to be more difficult than investors expect. However, at the end of the week, markets forgot about this issue for a moment, focusing instead on the lower-than-expected PPI inflation reading on Friday.
Highly frequent labor market data continues to show little or no easing, with the most reliable indicators suggesting wages are growing at a rate above 5% in the face of strong economic growth and a very tight labor market. We still hope that expectations for a Fed rate cut in March will not come true, and thus the dollar will be strongly supported against European currencies in the short term.
See also: Do you have Francs (CHF), Dollars (USD), Euros (EUR), Krone (NOK), Pounds (GBP)? Expert forecasts – exchange rates 2024
The November GDP reading surprised on the upside, alleviating concerns about a technical recession in the fourth quarter. The economy grew by 0.3% on a monthly basis after contracting by the same amount in October. If the latest PMI readings are to be believed, economic activity will likely pick up again in December. That would help The British economy avoids a technical recession. However, we will have to wait until mid-February, when the quarterly report will be published, to confirm this hypothesis. But the pound's reaction to these data was limited.
This week's data will put the Bank of England's recent tightening to the test. In addition to reading the December CPI (Wednesday, January 17), we will also learn about November wages and December employment data (Tuesday, January 16). It is expected that readings of price and wage dynamics will show a downward trend, but they will remain at much higher levels than in the Eurozone and the United States of America. Core inflation remains close to 5% and wages are growing at about 7% – both values must fall significantly before the Council can start cutting interest rates.
See also: We check the forecast for currencies 2024 [EURUSD, EURJPY, GBPUSD, USDJPY, EURNOK, EURSEK, EURDKK]
Echo Richards embodies a personality that is a delightful contradiction: a humble musicaholic who never brags about her expansive knowledge of both classic and contemporary tunes. Infuriatingly modest, one would never know from a mere conversation how deeply entrenched she is in the world of music. This passion seamlessly translates into her problem-solving skills, with Echo often drawing inspiration from melodies and rhythms. A voracious reader, she dives deep into literature, using stories to influence her own hardcore writing. Her spirited advocacy for alcohol isn’t about mere indulgence, but about celebrating life’s poignant moments.