A strong US labour-market report has increased pressure on the Federal Reserve ahead of its September meeting, with investors now assigning a higher probability to a rate hike. At the same time, the Polish zloty has been recovering ahead of the Monetary Policy Council’s decision, while the European Central Bank is widely expected to raise rates this week.
The next major signal for global markets will come from US inflation data on Friday, 11 September. The report will be the last major macroeconomic release before the Federal Reserve meeting on 16 September.
Zloty recovers as markets price higher Polish rates
The Polish currency has regained some of its recent losses. EUR/PLN has been moving toward 4.30, while USD/PLN has approached 3.70. The recovery is being supported by a somewhat weaker dollar and by a sharp shift in expectations for Polish interest rates.
Forward-rate agreements currently suggest that the market is pricing roughly two increases in Polish rates over the next six months. That change reflects both domestic data and the global environment.
Poland’s August inflation reading came in at 3.4%, above expectations, suggesting renewed pressure in underlying inflation. Second-quarter GDP growth was also stronger than initially estimated at 1.0% quarter on quarter.
Higher price pressure, robust wage growth and a relatively strong economy do not provide an obvious case for monetary easing. The authors of the original market analysis do not expect the RPP to cut rates on 9 September or, most likely, before the end of the year. Whether rate increases become a realistic scenario will depend heavily on energy prices.
Energy prices add another inflation risk
The global backdrop remains difficult. Brent crude has moved back above USD 95 per barrel, while European gas prices are at their highest levels since January 2023. Uncertainty surrounding the Middle East is also keeping an inflation risk premium in energy markets.
Although current market expectations for Polish rate hikes may be aggressive, the combination of stronger domestic data and expensive energy has significantly reduced expectations of rate cuts.
ECB rate hike is largely priced in
The European Central Bank is expected to increase interest rates by 25 basis points on Thursday, 10 September. Markets are treating the move as close to certain, so attention will focus more on President Christine Lagarde’s comments about the future path of policy and the rise in long-term bond yields.
Economic indicators such as PMI continue to suggest resilience in the euro-area economy, while core inflation remains above the ECB’s 2% target. That gives the Governing Council room to continue tightening.
Markets are currently pricing a terminal rate of around 3% in 2027, compared with 2.25% now. The original analysis argues that this may be too high, especially because much of the remaining inflation pressure is supply-driven.
Strong US employment data support the Fed hawks
The latest US jobs report showed a net increase of 162,000 jobs in August, well above the median forecast and even above the most optimistic estimates. The figures suggest that the labour market is not merely resisting a slowdown but remains relatively strong.
That gives the hawkish side of the Federal Reserve additional arguments for higher rates. At the same time, political pressure from the Trump administration remains intense, with the White House repeatedly calling for lower borrowing costs.
The result is a highly uncertain Fed meeting. A surprisingly strong inflation report on Friday could decisively shift expectations toward another increase, while a softer figure would strengthen the case for a pause.
Bond-market pressure weighs on the pound
The British pound has underperformed many other G10 currencies in recent weeks. UK long-term bond yields have risen sharply, with 30-year yields reaching their highest level in almost three decades.
The Bank of England is the major central bank least likely to raise rates in September. The market will therefore focus on UK July GDP data on Friday and testimony by Governor Andrew Bailey before the Treasury Committee.
For the zloty, however, the most immediate test comes at home. The RPP decision and the communication from the National Bank of Poland will determine whether the recent recovery can continue or whether global rate expectations once again put the currency under pressure.
Source: ManagerPlus market analysis.
