The market’s reaction to Karol Nawrocki’s win has been moderate, as anticipated. The scale of the post-election sell-off of Polish assets is not strong, although the zloty has given up the gains it made last week. This is not the only significant domestic news this week — in the second half, the Monetary Policy Council (RPP) will decide on interest rates. While rates are unlikely to change, the National Bank of Poland (NBP) governor’s press conference may provide clues about the Council’s future moves.
Key Points:
- PLN slightly weaker following Nawrocki’s victory.
- RPP expected to keep rates unchanged.
- US court blocks Trump tariffs, but the ruling was stayed.
- USD gains were short-lived due to weak US data.
- US Treasury bonds stabilize ahead of May’s NFP report.
- ECB is expected to cut rates by another 25 basis points.
Most major currencies ended the week near where they started. Various tariff-related news roughly offset initial signs of a slowdown in the US economy following the so-called “Freedom Day.”
Trump faces a new challenge as the US International Trade Court ruled his reciprocal tariffs illegal. Initially, the dollar gained slightly but these gains were short-lived, as markets expect the administration to find a workaround. The ruling was later temporarily stayed pending a White House appeal. US Treasury bonds stabilized after several volatile weeks, but early signs of tariff-driven US economic slowdown weighed on the dollar. Most emerging market currencies weakened versus the dollar, though the moves were generally limited.
This week will bring numerous important data releases and monetary policy decisions. On Tuesday (June 3), the preliminary inflation reading for May in the eurozone will be published. On Thursday (June 5), the European Central Bank (ECB) will decide on interest rates. On Friday (June 6), the awaited US non-farm payrolls (NFP) report will be released, which will either confirm or refute early signs of slowdown seen in high-frequency data. There are no US Treasury auctions this week, so attention should temporarily shift from bonds to economic data.
Polish Zloty (PLN)
The victory of conservative candidate Karol Nawrocki in the presidential runoff has put some pressure on Polish assets, and the zloty lost last week’s gains despite having performed well previously. However, the scale of the sell-off is small, suggesting markets do not expect far-reaching consequences such as the collapse of the ruling coalition. Nevertheless, its ability to implement reforms will remain limited, and consolidating public finances may prove more difficult.
Domestic macro data have mostly been positive. Last week’s retail sales figures exceeded expectations significantly — annual growth was the highest in nearly three years, supporting the view that economic growth will accelerate in Q2. Inflation in May fell to 4.1%, surprising to the downside, which is also favorable.
It will be interesting to see how these developments influence the Monetary Policy Council’s (RPP) deliberations on Wednesday (June 4). Interest rates are almost certain to remain unchanged, as indicated by NBP governor Adam Glapiński. The key for markets will be his rhetoric at Thursday’s (June 5) press conference, which may provide clues about the July meeting.
Euro (EUR)
At the June meeting on Thursday (June 5), the ECB is expected to cut interest rates by 25 basis points — this is fully priced in by markets, so the move should not significantly impact the euro. More important will be the Council’s communication and updated economic projections, especially the inflation forecast revision. We are curious how the ECB will interpret recent mixed data, where surveys continue to paint a grim picture but actual readings remain relatively resilient.
May inflation data will be published on Tuesday (June 3), just two days before the ECB meeting. Markets expect a reversal of the April upside surprise, and further rate cut expectations will depend on this assumption. Therefore, this data release may carry even more weight than the meeting itself.
US Dollar (USD)
Last week, calm returned to the US bond market, helping to stabilize the dollar. However, the usual correlation between higher US Treasury yields and a stronger dollar has been disrupted, which is unfavorable for the currency. Early signs of deteriorating labor market conditions emerged in slightly higher weekly initial jobless claims, approaching levels last seen in October. This is not yet a cause for panic, and futures markets are holding off on pricing in another Fed rate cut until at least September.
The revised Q1 GDP growth (from -0.3% to -0.2% annualized) also showed slower US consumption, which according to the recent PCE report, continued into April. This week’s data is expected to indicate slight further slowdown, with May’s NFP payroll creation (Friday, June 6) forecasted to drop to 130,000. This is unlikely to convince the Fed to cut rates in the near term.
British Pound (GBP)
A significant upside surprise in April retail sales in the UK, following the earlier inflation shock, reinforces the view that the Bank of England will not rush into cutting rates. For now, UK consumers appear resilient to multiple risks including tariff uncertainty, recent corporate tax increases, and higher household bills. However, we believe this resilience is unlikely to last, which could limit the pound’s appreciation in the short term.
Medium-term prospects for the currency remain positive. The UK and US have the highest interest rates among G10 economies, which should be significantly supportive for the pound in coming months. Trade prospects are also relatively good after the two countries reached an agreement, while the UK government’s efforts to strengthen ties with Europe continue to improve trade relations with the EU. We believe the pound has the highest growth potential among G10 currencies.
Authors: Enrique Díaz-Alvarez, Matthew Ryan, Roman Ziruk, Michał Jóźwiak – Analysts at Ebury
