The past week on the foreign exchange markets was relatively calm. The market has stabilized after recent upheavals, and the introduction of additional tariffs by the U.S. has had little impact. It seems that the unwinding of outdated long dollar positions over the past few weeks has allowed the currency to regain some stability following its sharp sell-off in March.
Key Points:
- The Polish zloty (PLN) maintains a strong position.
- The U.S. dollar (USD) holds its ground despite concerns over Trump’s tariffs.
- The FOMC is expected to keep interest rates unchanged and publish a new dot plot.
- The Bank of England (BoE) is likely to maintain rates with a 7:2 voting split.
The slight rebound in the dollar occurred despite President Trump continuing to surprise with tariff decisions and investor fears of an economic slowdown in the U.S. leading to a market retreat. We believe that while recent data from the world’s largest economy has been disappointing, it has not been disastrous. There are reasons to believe that the fear of an impending recession may be overstated at this point.
This week, attention may shift from Trump’s erratic policies to upcoming central bank decisions. Within 24 hours between Wednesday and Thursday, we will see meetings from the Federal Reserve, the Bank of Japan, the Swiss National Bank (SNB), Riksbank, and the Bank of England. Only the SNB is expected to cut interest rates, but markets will closely watch the Fed and BoE’s responses to what appears to be a slowdown in both economies, according to recent indicators.
Polish Zloty Performance
The Polish zloty performed quite well last week, outpacing most regional currencies. Positive sentiment toward Europe has helped maintain a strong exchange rate, and the hawkish stance of National Bank of Poland (NBP) Governor Adam Glapiński has not hurt the currency either. The inflation reading for February, accompanied by a revision of the inflation basket and January data, showed that inflation in the first two months of the year stood at 4.9%, which was an anticipated change. Due in part to this, the NBP’s new inflation projections seem overly pessimistic, and Glapiński’s continued hawkish tone appears somewhat unjustified. Investors are waiting for mid-year to clarify the timeline for a return to interest rate cuts.
The coming days will bring numerous economic reports from Poland, particularly on Thursday (March 20), when key labor market data and industrial production figures for February will be released.
Euro Outlook
The euro remains buoyed by optimism stemming from significant fiscal easing in Germany and changes to the debt brake agreed upon last week by the new Grand Coalition parties and the Greens. This will allow Europe’s largest economy to undertake a major revision of its fiscal policy, enabling EUR 500 billion in infrastructure investments over the next decade while exempting defense spending above 1% of GDP from the deficit-limiting rule. Markets anticipate that these developments will provide much-needed support for the eurozone economy while reducing the necessity for aggressive interest rate cuts by the European Central Bank—both of which favor the common currency.
Additionally, the euro is supported by signs of capital relocation from U.S. equities to cheaper European stocks, as indicated by the strong performance of European markets in 2025. This week, there will be few economic data releases from the eurozone, meaning euro movements will likely be influenced primarily by tariff-related news.
U.S. Dollar Performance
U.S. stocks and the dollar have been influenced in recent weeks by growing concerns over a potential economic slowdown in the United States, fueled by Trump’s unpredictable policies and significant import tariffs. Interestingly, Treasury yields have not followed stock markets downward as expected and remain close to levels seen before the equity sell-off began. Labor market data does not yet indicate significant weakening, including the latest unemployment claims, which have remained near a healthy level of approximately 220,000.
The Federal Reserve is expected to adopt a “wait and see” approach this week. Interest rates will remain unchanged, and the revised dot plot is likely to suggest only gradual rate cuts. Given the potential slowdown in the U.S. economy, numerous economic reports—particularly February retail sales (Monday, March 17)—will be of heightened importance this week.
British Pound Outlook
The Bank of England is expected to keep interest rates at a relatively high level of 4.5% during its Thursday (March 20) meeting. Swap markets currently price in only a 10% chance of another rate cut. The main uncertainty surrounds the voting split among Monetary Policy Committee members. In February, all nine members voted in favor of keeping rates unchanged, but two unexpectedly supported a 50-basis-point cut. This time, we expect a 7:2 split, with two members advocating for a 25-basis-point cut while the rest support maintaining rates.
Before the meeting, key labor market data for January and February will be released on Thursday (March 20). The most critical figure will likely be wage growth, expected to remain around 6%—a level inconsistent with inflation returning to target, explaining the BoE’s cautious stance. We will also monitor whether recent government tax hikes on social insurance are reflected in the data. If so, we may see some weakness in the pound this week.
Authors: Enrique Díaz-Alvarez, Matthew Ryan, Roman Ziruk, Michał Jóźwiak – Ebury Analysts
Source: ManagerPlus
