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Dollar Strengthens on US Power, PLN Appreciates Despite Weak GDP, EUR Waits for Rate Cuts

INVESTINGDollar Strengthens on US Power, PLN Appreciates Despite Weak GDP, EUR Waits for Rate Cuts

The start of 2024 on the currency markets was dominated by the power of the American economy, which is pushing the markets to delay expectations for interest rate cuts, thus aiding the dollar’s recovery of some of the losses it incurred at the end of 2023.

There was no break in this trend last week. The January FOMC meeting didn’t cause significant moves on the currency markets, but an excellent report from the US job market pushed investors to shift their expectations for the first interest rate cut from March to May. There is nowhere else where the economic power is so apparent, which supports the appreciation of the dollar. The dollar strengthened against most of the world’s major currencies last week, including all G10 currencies.

This week will be fairly calm in the major economies – we will not get many new readings nor any interest rate news. Hawkish comments from the Fed last week and signs of a renewed acceleration of the American economy could cause most currencies to lag behind the dollar – at least until mid-February when the latest inflation data will be published. We believe that inflation numbers will remain key for currency movements in the medium term.


Last week was characterized by an overall positive sentiment towards the CEE region, and the Polish zloty had an especially good week. The zloty strengthened by more than 1% against the euro, causing the EUR/PLN rate to fall to its lowest since mid-December (to 4.31). As a result, the Polish currency topped the CEE currency chart.

The zloty’s appreciation is impressive, particularly considering Poland’s weak GDP report and the strength of the US dollar. Economic growth in 2023 barely remained positive (0.2% against expected 0.4–0.5%), suggesting that economic activity at the end of the year was much weaker than thought. This led to an increase in bets for interest rate cuts. By the end of the week, however, these bets were reduced again due to the strong US employment report, which shook expectations for interest rates worldwide. We maintain a rather positive view on the Polish currency, but we wonder whether its appreciation is overly stretched and if its gains will be limited in the coming weeks.

This week, attention will focus on the RPP’s decision on interest rates on Wednesday (07.02). A change in the level of interest rates is almost out of the question, so the bank’s rhetoric, especially during the press conference of President Adam Glapiński the next day, will be crucial. We don’t expect any significant revelations from the February meeting, so we do not expect it to cause increased volatility.


Last week’s readings confirmed that the Eurozone economy stagnated in the last quarter of 2023, but technically avoided a recession. For the whole of 2023, GDP growth was close to zero (0.5%). Inflation in January continued to fall but was slightly higher than expected.

In broad terms, unless there is an unexpected rise in inflationary pressure, we believe that the European Central Bank will likely begin cutting interest rates before the Bank of England and the Federal Reserve – the earliest probably not being until April. Swap markets see it the same way, pricing in a two-thirds probability of a move in April. The week began with PMI data revisions, to be followed by new retail sales data on Tuesday 06.02. This week, several speeches from members of the Executive Board are also planned, including ECB chief economist Philip Lane on Thursday 08.02.


After last Wednesday’s FOMC meeting, the dollar only appreciated slightly, even though Chairman Jerome Powell decisively pushed back market expectations for the first interest rate cut. The statement removed the line that further interest rate rises might be needed, but it emphasized the need for more evidence to normalize inflation. During his press conference, Powell also stated that a March cut is unlikely, providing a particularly clear forward guidance.

An excellent jobs market report for January was also published last week, showing strong increases in jobs and wages and a decrease in the unemployment rate. This eventually made investors drastically lower their pricing for interest rate cuts in March, strengthening the dollar. Price discrimination data may cause some volatility this week (Friday 09.02).


Last Thursday, the Bank of England took a slightly more dovish stance. One of the Monetary Policy Committee members voted to leave rates unchanged, having previously voted for an increase; another voted for a reduction having previously been neutral. According to the consensus among Committee members, the benchmark rate has reached its peak in the current cycle, but there is little appetite for cuts, so we probably won’t see the first reductions before summer at the earliest. Growth forecasts were revised upwards, although the bank pointed out that inflation is set to rise again after Q2.

The pound continues to benefit from the highest short-term interest rates among the major economies and slightly better economic data compared to other European countries. Next week’s Q4 GDP data will be interesting in this regard – there is a certain probability it will confirm a technical recession.

Authors: Enrique Diaz-Alvarez, Matthew Ryan, Roman Ziruk, Itsaso Apezteguia, Michał Jóźwiak – Ebury analysts

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