Reports of Russian drones entering Polish airspace did not cause significant weakening of the zloty, and the currency has already recovered all its losses at the start of the week. The market’s muted reaction to this situation strengthens the view that the EUR/PLN exchange rate should remain stable at current levels in the foreseeable future. This week, investors will focus on a series of macroeconomic indicators and Moody’s review of Poland’s credit rating.
Key Takeaways
- PLN strengthened despite temporary pressure.
- The Fed is set to cut rates for the first time since December.
- U.S. BLS revisions point to sharp labor market cooling.
- The ECB kept rates unchanged, suggesting the end of its cutting cycle.
- The BoE is expected to hold rates, signaling slower easing ahead.
Global Outlook
U.S. inflation has exceeded the Fed’s target for five years and is slowly rising. At the same time, labor market weakness is becoming more evident, increasing pressure on the Fed to cut interest rates. Equities, counterintuitively, continue to reach new highs, while the dollar remains firm—likely because other major Western economies are struggling with their own challenges, such as ongoing stagnation in the eurozone and stagflation in the U.K. Gold continues to benefit the most, having gained around 40% against the dollar since the start of the year.
The central event this week will be Wednesday’s Fed meeting (Sept. 17), where markets expect the first U.S. rate cut of 2025. A 50 bp move is unlikely, as it could signal panic and trigger market sell-offs. Data on August retail sales (Tuesday, Sept. 16) and initial jobless claims (Thursday, Sept. 18) will shed more light on the extent of the slowdown. In the U.K., labor market data (Sept. 16) and inflation (Sept. 17) are due, while the eurozone faces a quiet week.
PLN
Last week’s events in Poland made headlines worldwide, but the tense atmosphere following Russia’s drone provocation did not translate into major moves on FX markets. Pressure on the zloty was very limited. By the following day, it had recovered most losses and now trades slightly stronger than before the incident.
Although similar events may recur, the zloty’s resilience reinforces the view that the EUR/PLN rate should remain stable in the near term. With Russian-Belarusian military drills “Zapad 2025” underway and a Russian drone violating Romanian airspace over the weekend, geopolitical risks are more relevant than before. However, given investors’ focus on global macro themes, this is likely to fade into the background quickly.
Locally, key August data will include core inflation (Sept. 16), labor market and industrial production figures (Sept. 18). Friday’s (Sept. 19) Moody’s rating review of Poland will also be closely watched. Given the country’s strained fiscal situation, a shift in outlook from stable to negative is possible, and even a downgrade cannot be ruled out.
EUR
September’s ECB meeting went as markets expected. President Christine Lagarde struck a hawkish tone, noting that the bank is not overly concerned about inflation and that policy is in “a good place.” Unless extraordinary developments occur, the easing cycle appears to be over. Swap markets are not currently pricing in further cuts.
However, the narrowing gap between U.S. and eurozone interest rates, which would normally support the euro, is offset by concerns over France’s fiscal outlook. Political constraints make even minor cuts unlikely, while France’s deficit is among the largest in the bloc. Raising taxes to reduce it seems improbable given already high tax levels. Fitch’s downgrade of France’s credit rating over the weekend underscores the problem. With few eurozone data releases this week, the common currency will likely take direction from external events.
Authors: Enrique Díaz-Alvarez, Matthew Ryan, Roman Ziruk, Michał Jóźwiak – Ebury Analysts
Source: ManagerPlus.pl
