Despite recent events at the White House, investors remain confident that the conflict was merely a strategic maneuver leading to an agreement.
For the currency market, the key factor in recent weeks has been developments surrounding Ukraine. In this context, the German elections also played a significant role. Investors and analysts speculated on whether Donald Trump would be more inclined to consider the views of Germany’s new government. Would Merz follow through on his campaign threats against Musk, potentially straining relations with the U.S.? Would the German government continue to align itself with Macron? These are just a few of the pressing questions, and the upcoming week may bring some answers. A sense of relief best describes the market’s reaction following Germany’s snap parliamentary elections. The euro gained against the dollar, and DAX futures rose. The election results closely mirrored polls, causing the market to quickly shift its focus elsewhere.
“In recent months, the złoty has been exceptionally strong, especially against the euro. We are witnessing seven-year lows on the EUR/PLN pair and are even approaching ten-year lows,” said Michał Stajniak, Deputy Director of Analysis at XTB, in an interview with MarketNews24. “The złoty is extremely strong against the euro. If we analyze the volatility spectrum, we saw levels close to 5 PLN per euro a year ago (around 4.60 PLN), but now we are near 4 PLN. However, the volatility of EUR/PLN is not as high as that observed in South American and Asian currencies.”
For the złoty, a crucial factor remains whether the market continues to believe in the possibility of an agreement on Ukraine, which would significantly reduce geopolitical risk in the region—an expectation that has been partially priced in. Before the Oval Office meeting between D. Trump and V. Zelensky, the euro was priced at 4.16 PLN, the dollar at 3.97 PLN, the Swiss franc at 4.42 PLN, and the British pound at 5.00 PLN.
On Friday, the Ukrainian president’s visit to the White House ended in a public dispute before the cameras. While it may have appeared that negotiations were heading in a negative direction, the market remained calm. Investors believe that this was part of a broader strategy leading to an eventual agreement. As the new week began, the euro was trading at 4.18 PLN, the dollar at 4.00 PLN, the Swiss franc at 4.44 PLN, and the British pound at 5.06 PLN. The changes were less drastic than expected, with the złoty quickly recovering much of its weekend losses.
Trump aims for domestic success, which is why securing access to Ukrainian resources is seen as a victory that could justify the agreement. Trump approaches such deals from a business perspective and wants to demonstrate that he has “earned money for Americans,” in contrast to Biden, who was perceived as merely spending billions. However, to achieve an agreement, he is exerting pressure on the Ukrainian president, who, in turn, seeks support in Europe.
Market behavior strongly suggests positive investor sentiment toward the negotiation process. European stock markets and the złoty have maintained their upward trends, indicating that investors, despite all uncertainties, view the situation as ultimately favorable. Of course, markets do not have a guaranteed ability to predict the future. If negotiations ultimately fail, investors will face a harsh reality check.
“Investor expectations were reflected not only in the currency market but also in the decline of global oil prices and natural gas prices on European markets—an advantageous factor for the Polish economy,” added the XTB expert.
At the start of the week, the U.S. president is expected to officially announce tariffs on Mexico and Canada (25%) and an increase in tariffs on China (by 10 percentage points). So far, this topic has been overshadowed by the Ukraine issue. It still appears that such drastic tariffs are primarily a “negotiation tactic,” and the market anticipates that Trump might withdraw them at the last moment. However, as with the Ukraine situation, if these hopes do not materialize, markets could react sharply.
“The next phase of the trade war could negatively impact not only the euro but also the złoty,” assessed M. Stajniak from XTB. “At the same time, there is potential for further weakening of the USD/PLN pair. If the war in Ukraine ends, I could see the USD/PLN rate dropping to 3.60-3.70 PLN per dollar, which would be a very strong deflationary factor. This, in turn, could significantly raise the likelihood of interest rate cuts, as Poland buys oil in dollars.”
Source: ManagerPlus
