The euro rises slightly, the dollar remains under pressure, the zloty is the weakest in the region (Daily analysis 7.05.2021)

Good sentiment prevails on global markets. This is reflected in new all-time highs on Wall Street, the highest copper prices in history and a globally weakening dollar.

In the first part of the week, the EUR/PLN pair failed to drop below 4.55 permanently and rebounded towards 4.58, i.e. the highs from last week, just before the ruling of the EU Court of Justice, which did not resolve the doubts regarding the Swiss franc loan holders. This issue remains a major concern for the Polish currency, and further weakness can be expected ahead of the meeting of the Supreme Court's Civil Chamber scheduled for May 11.

The Polish zloty has recently emerged as one of the worst performers

The Central Bank's mild stance does not help either, as it acknowledges higher inflation but probably intends to limit its comments to that. More information on the domestic monetary policy outlook may be provided by an afternoon video conference in which President Adam Glapinski will answer journalists' questions, which is meant to serve as a substitute for press conferences suspended due to the pandemic. Strongly negative real interest rates may slow down the rate of the zloty's appreciation and make it more sensitive to potential turbulence on global markets. Dynamic growth and positive trends in the balance of payments will make the Polish currency have its five minutes at some point - in the medium and long term the current exchange rate ceilings should be perceived as definitely high.

The ruble and the koruna are clearly appreciating

At the same time, the forint, the Czech koruna, but also the ruble are gaining. The easing of geopolitical tensions and the hawkish stance of the Bank of Russia, as well as the good situation on commodity markets, are conducive to a return of the exchange rate to levels more consistent with fundamental evaluation. About three-quarters of the repricing against major currencies that began in March has been erased, but with good sentiment in global markets, the ruble should continue to gain.

The Polish monetary policy is in contrast not only with the Russian one, which is characterized by precautionary rate hikes stricter than expected. Since March, the Bank of Russia has raised the cost of money by a total of 75 bps; forecasts assume another 50 bps, and the market values this rate at 125 bps. The Czech Republic, whose role in the international financial system is much closer to the Polish one, is also tightening again. They softened their stance when the third wave of disease was on the rise. On the other hand, it was announced yesterday that higher-than-targeted inflation and better-than-expected GDP growth in Q1 (-2.1% vs. the expected -2.6% y/y) make it inadvisable to overdo the tightening.

The dollar's missed opportunity

The EUR/USD exchange rate retreated to 1.20 this week but rebounded from this barrier. This means that the opportunity for the dollar to rebound was not used. We should remind you that Janet Yellen - rather awkwardly - spoke about potential rate hikes. If the Treasury Secretary's slip-up and unnecessary comment had coincided with the US economy's strong economic data, it would have created a good environment for the US currency, and there would have been a pretext to bet that the Federal Reserve will soon tighten rates.

Meanwhile, the ISM indexes came in strong, confirming that the economy is in good shape but not suggesting that economic activity is rebounding faster than the Federal Reserve anticipated in March. The ADP report on employment change in the private sector came in below forecasts but was still positive, indicating a gain of nearly 750 thousand jobs. Only the weekly data on new jobless claims came in better than expected. Not only was it the lowest since the beginning of the pandemic, but it also fell below the 500 thousand level. In this case, the positive data is not without a bit of negative news, either - the previous data was unfavourably revised. The latest news from the US economy will be overshadowed by a series of market releases in the afternoon: employment is expected to grow by more than a million jobs, and unemployment is expected to fall from 6 to 5.8 percent. However, in the current environment, the positive news should have a positive impact on risk appetite rather than strengthen the dollar. This will be due to the lack of indications that the Federal Reserve would like to abandon the crisis policy quickly.