Early data on retail sales in April may reinforce a “wait and see” stance among members of the Monetary Policy Council. These figures represent one of the most optimistic signals in recent months. Later this week, attention will turn, among other things, to the second round of the presidential elections. We do not expect significant market changes after the elections (regardless of the outcome), but a victory by the liberal candidate, Trzaskowski, may be considered more favorable for political stability.
Key points:
- The Polish zloty (PLN) is stronger; retail sales data are impressive.
- The US dollar (USD) weakens amid fiscal concerns.
- Trump’s tax law passes its first test in Congress.
- A proposed 50% US tariff on the EU was announced but later postponed.
- High inflation readings in the UK support the British pound (GBP).
Last week, the US House of Representatives approved a budget bill that implies further debt growth, prompting investors to sell US Treasury bonds and the dollar. The currency depreciated in response to rising yields—the relationship between the dollar and yields reversed after the so-called “freedom day.” Long-term Treasury bonds are experiencing sell-offs worldwide, with stronger movements seen in the US. The dollar lost ground against other major currencies but remains well above the April 2 lows. The star of the week was the Japanese yen, which appears to benefit most from the global repricing of interest rates.
This week, several US economic releases are expected: durable goods orders (Tuesday, May 27), initial jobless claims (Thursday, May 29), personal income and spending, and PCE inflation (Friday, May 30). Investors will analyze these closely to assess potential effects of Trump’s tariffs. Key signals will also come from the US president’s social media posts. However, markets have become less sensitive to such news—as seen with the announcement and postponement of the 50% tariffs on the EU.
PLN
The zloty has regained some losses in recent days. The EUR/PLN rate returned to around 4.25, supported by both external and local factors. Globally, “sell America” trade continues, benefiting the EUR/USD pair. Domestically, the market calmed quickly after the first round of presidential elections, and recent data were quite favorable for the zloty. The upward surprise in April wage growth should support the Monetary Policy Council’s “wait and see” stance, as should Monday’s impressive retail sales, which are among the most optimistic signals in recent months, suggesting rising demand after a sluggish start to the year.
This week’s focus will be on the preliminary May inflation reading (Friday, May 30) and the second round of presidential elections (Sunday, June 1). According to polls and betting odds, Trzaskowski and Nawrocki are almost neck and neck, though the implied probability on Polymarket has shifted recently—currently 65% to 36% in favor of Trzaskowski. We do not expect major market upheavals post-election, regardless of the outcome, but markets will likely prefer the liberal candidate as this is seen as better for political stability.
EUR
It seems the EU has become the latest target of Trump’s tariff threats, but markets have learned to expect many words and little action from the US president. The euro was not significantly affected by the threat or the postponement of tariff hikes, and appears to be in a steady, though gradual, upward trend.
The fiscal outlook in the eurozone is decidedly less grim than in the US—average deficits remain below half of those across the Atlantic, despite Germany’s fiscal plans. This relatively pragmatic approach may support the common currency, as investors are currently paying more attention to fiscal stability. Not all news is positive for the euro, however: strong inflation readings likely paved the way for two more European Central Bank rate cuts this year.
USD
The sell-off in Treasury bonds amid concerns about the “One Big Beautiful Bill” legislation sustains dollar weakness, challenging long-standing market relationships. Positively for the dollar, economic data show only minor negative effects from tariffs, and business activity surveys, including last week’s S&P PMI readings, are normalizing. There are no signs of labor market deterioration, and jobless claims data do not indicate mass layoffs.
Paradoxically, the sharply rising tariff revenue is currently the only fiscal positive. Combined with higher US bond yields and a heavily one-sided market positioning—where investors expect significant dollar declines—this may offer the currency a brief respite. However, the long-term trajectory for the US dollar likely points downward.
GBP
Last week’s large inflation surprise fully justified the Bank of England’s recent hawkish stance. The pound appears set to remain the second highest-yielding G10 currency after the dollar in the foreseeable future. Further pound appreciation seems justified, considering the UK economy’s relative resilience to Trump’s tariffs, prospects for closer ties with the EU, and strong domestic demand.
No key data releases are scheduled for the UK this week, but several speeches from committee members—including Governor Andrew Bailey—are expected. Their views on the inflation surprise and strong retail sales data will be closely watched. We anticipate discussions of a “gradual and cautious” approach to monetary easing, with most committee members likely rejecting any near-term rate cuts (markets price in a full cut only by November).
Authors: Enrique Díaz-Alvarez, Matthew Ryan, Roman Ziruk, Michał Jóźwiak – analysts at Ebury
