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Inflation fears return in the USA: strong dollar, stable złoty

INVESTINGInflation fears return in the USA: strong dollar, stable złoty

The January inflation report from the United States contained everything the Federal Reserve did not want to see. Both the main and core measures of inflation were higher than expected, and the disinflation trend observed for most of 2023 clearly hit a wall. The market-based scenario shifts cuts overseas to June – the dollar gains, but the zloty surprisingly maintains stability in this environment.

Even though the key core inflation measure from our perspective remained at an unchanged level of 3.9%, its momentum, indicating further inflationary pressure, is not favorable. As a result of the report’s publication, bonds worldwide lost significantly, as did risky assets, which, however, managed to recover most of the losses by the end of the week. The dollar was one of the best-performing major currencies, but its appreciation was not as strong as one might expect (a movement within 1% against other G10 currencies).

This week will be fairly quiet – at least until Thursday (22.02), when preliminary February PMI readings for business activity in the eurozone, the USA, and the UK will be published. The week will end with a series of speeches by Fed members and a presentation on inflation by ECB Governing Council member, Isabel Schnabel. In general, after the recent unpleasant surprise with inflation in the US, investors may be a bit more nervous in the period leading up to the publication of data on price pressure in individual countries.


Like other emerging market currencies, the zloty suffered from declining valuations of a sharp cut in US interest rates and a strengthening of the dollar following the latest US inflation reading. However, its sell-off was relatively small, and the EUR/PLN rate is still in the lower half of the 4.31–4.41 range, where it has been for three months.

Just like in the US and a few other G10 countries, attention in Poland focused on inflation last week. The base effect caused by high prices a year ago helped a significant drop in the main measure at the beginning of 2024 – from 6.2% in December last year to 3.9% in January this year. The year started well with a smaller price increase than expected. The core measure also fell, but we will know its exact reading on March 18th with the data for February (not on February 16th, as we reported last week).

In addition to inflation data, we learned the GDP reading for the fourth quarter, which admittedly showed a continuation of growth in annual terms, but these were not impressive data. The current account balance was less negative than expected in December, and a surplus equivalent to 1.6% of GDP was recorded for the whole of 2023. We believe that the significant increase from a deficit of 2.4% of GDP in 2022 was one of the most important factors that allowed the zloty to strengthen in 2023.

This week, numerous readings from Poland will help us determine how the economy is doing at the beginning of the year. Attention should focus on Tuesday’s (20.02) industrial production and Wednesday’s (21.02) retail sales, for which a positive reading in real terms is expected. The data will help estimate the scale of the consumption recovery, which should be the most important factor conditioning growth in 2024. However, news from abroad may be more significant for the zloty as a series of economic readings and speeches by officials from the main central banks can cause volatility.

In the local context, speculation about a possible attempt by the government to remove NBP President Adam Glapiński from his position returned after a Bloomberg article. The text suggested that Prime Minister Donald Tusk agreed to put Glapiński before a “special tribunal” to rule on whether the NBP president’s actions were legal. The markets have not yet reacted, but we cannot rule out that the above issue will have repercussions if the authorities decide to take action against Glapiński.


The December industrial production in the euro zone positively surprised, growing on an annual basis (adjusted for the number of working days) for the first time since February 2023.

If Thursday’s PMI readings are better than the bleak expectations, 1.07 may become the lower limit for the EUR/USD exchange rate. Markets are currently almost evenly divided over expectations regarding the timing of the first cut – consensus is wavering between April and June. We find these valuations rational at the moment.


It is hard to believe today that just a few weeks ago, markets fully priced in a March interest rate cut in the US. However, data published since then showed a resurgence in the economy, and inflation rose again. Our preferred measure, the 3-month annualized core reading, returned to 4% and is now at the highest level for over six months.

Markets have now pushed back the pricing of the first full cut to June – if inflation continues not to surprise on the upside, this perspective seems justified.


The tone of the inflation report in the UK was the opposite of the American one – the data slightly surprised on the downside. The Q4 GDP reading – which confirmed that the British economy had slipped into a technical recession – is positive for the dovish faction of the Bank of England.

The preliminary PMI readings this Thursday (22.02) should provide more current indications regarding the current state of the economy. Markets expect the PMIs to suggest a significant recovery in Q1 2024 growth, which may explain why pound declines are shallow and short-lived.

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

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