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Friday brought minor changes in the zloty, keeping the EUR/PLZ close to 4.64-4.65.
Retail sales, which rose in nominal terms by 22% year-on-year, and in constant prices by 9.6% year-on-year, were also added to the data on high industrial production growth, which was released earlier in the week, in both cases exceeding economists’ expectations. According to peacekeeping economists, the latest data suggests that gross domestic product may have risen as much as 10% year-over-year in the first quarter. This data, along with strong wage pressures and higher inflation, reinforce expectations for an interest rate hike in Poland. However, we did not notice a significant appreciation of the zloty, since in Poland real interest rates remain extremely negative, and monetary policy is being tightened not only in Poland or other developing countries, as well as in developed countries. We expect that next week the EUR/PLN rate will be maintained in the range of 4.60-4.65.
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A strong US dollar is an obstacle to strengthening emerging market currencies
After a temporary rally in the EUR/USD pair above 1.09, the Friday session brought a comeback even below 1.08. Recent hawkish comments from Fed members, including Chairman J. Powell, who confirmed that a 50 basis point rate hike would be considered, added strength to the US currency. In contrast, the euro, which was rising earlier in the week due to hawkish comments from European Central Bank members, lost some activity after comments from President C. Lagarde, who expressed concerns about an economic slowdown. The information that Macron won the second round of the French presidential elections had no effect on the performance of the euro.
In the domestic interest rate market, an event-rich calendar will support high volatility in quotes in the coming week. The two-year bond yield should remain close to 6.75% and the 10-year bond yield around 6.30%.
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The most significant event will be the publication on Friday of preliminary inflation data for April
The CPI is expected to rise around 11.4% y/y versus 11% in March. It should be noted that all inflation readings in 2022 turned out to be higher than expected by an average of 0.4 percentage points. Percentage A further rise in inflation will put pressure on the Monetary Policy Committee, whose members indicate the possibility of increasing the NBP reference rate to nearly 7.5%. At the end of last week, the entire derivatives market was priced in an increase in the key rate above 7.0%.
This market expectation may be reinforced by a rate hike in Hungary on Tuesday (in the case of the key rate, a move of 100 basis points to 5.40% is expected). Although in April we noticed an activation of demand for longer fixed-rate bonds, information about the upcoming releases may affect the market slightly. BGK indicated the possibility of issuing bonds at auction on Wednesday, and on Friday the Ministry of Finance will present the details of the auction in May. We can expect total Treasury sales of PLN 10 billion in one regular swap auction and one auction.
In the second quarter of 2022, the valuation of Polish bonds may be affected by negative trends in the global market
The Federal Reserve is confirming its willingness to cut the balance sheet and raise interest rates to neutral later this year. Comments from ECB representatives indicate that a faster withdrawal of non-standard monetary support is being considered in the eurozone. These signals will be further reinforced by the release of flash data on inflation in the Eurozone.
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