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Volatility in the złoty is at its highest since October

INVESTINGVolatility in the złoty is at its highest since October

Last week did not see significant movements in the major currencies, although the Polish złoty experienced its strongest changes in nearly half a year. We attribute the considerable weakening of the Polish currency on Tuesday (16.04) primarily to worsened investor sentiment. This particularly impacted those emerging market currencies that had performed well earlier this year, such as the złoty.

The recent turn of investors towards safer assets is the result of two key factors. The first is the diminishing expectations for interest rate cuts in the United States, and the second is the exchange of blows between Israel and Iran.

Last week brought more favorable data from across the ocean (retail sales grew by 4%, and the Atlanta Fed’s GDPNow forecast for Q1 is now at 2.9%) and developments on the geopolitical stage—on Friday, Israel decided to carry out an attack on Iran, largely dismissed by Tehran. However, volatility in the major currencies remained very limited (within 1%), and oil prices fell.

This week, attention will focus on PMI indicators for business activity—the most current data providing insight into the activity of the largest economies. On Tuesday (23.04), data will be released for the eurozone, the USA, and the United Kingdom. The Friday (26.04) PCE inflation report in the USA will also be significant—this is the measure usually preferred by the Federal Reserve in making monetary policy decisions. Attention will also focus on a series of speeches by officials from the European Central Bank.


For the złoty, it was another week full of changes. The EUR/PLN pair experienced the highest weekly volatility since last October, and implied volatility rose to the highest level since January. The EUR/PLN rate crossed the 4.36 level, then ended the week 5 grosze lower. The złoty weakened against the euro and fared worse than other regional currencies. We mainly attribute this to external factors—the change in expectations regarding US interest rate cuts and concerns about the situation in the Middle East.

Last week’s news from Poland did not cause turmoil. Firstly, it is worth noting that Poland received EUR 6.3 billion from the recovery fund. Secondly, inflation was minimally revised upward (to 2% in March), while its core measure experienced a further decline (to 4.6% in March). The situation looks good, and recent news about regulated prices suggests that inflation at year-end will likely be around 4–5%—a level significantly lower than the bleak scenarios recently considered, but still well above the target.

This week will bring numerous macroeconomic readings. The most important among them will be the March retail sales (Tuesday 23.04), which should indicate further improvement in consumption.


ECB statements on monetary policy essentially confirmed that the first interest rate cut would occur in June, and President Christine Lagarde last week reiterated that lower interest rates are coming. Movements after June are not as certain and will depend on incoming data.

The improvement seen in economic readings, still high core inflation, and the hawkish change in Fed communications argue against aggressive policy easing by the ECB. Current market expectations, assuming three interest rate cuts before the end of the year, are much more conservative than a few weeks ago, but still depend on the ongoing downward trend in eurozone inflation, which we have not seen recently in the United States. This week, attention will focus on Tuesday’s (23.04) PMI indicators, which should signal further economic recovery.


In the USA, economic data remains strong—last week’s pleasant surprise was a very good report on retail sales for March. Resilient consumer spending and persistent inflationary pressure led to a significant change in market valuations of expectations for Federal Reserve interest rate cuts this year. Fed officials’ communications are hawkish and largely consistent with the change observed in the market.

The likelihood of a cut in June is small, and only one move of 25 basis points is expected before the December meeting. The dollar gained on this change in valuations. However, current valuations may be somewhat overestimated, and further appreciation of the US dollar would, in our opinion, require inflation readings significantly higher than those recently recorded. The Friday (26.04) PCE inflation report for March will be extremely important in this respect—markets expect a slight increase in the main measure and a minimal decrease in the core.


In the UK, wages in February and inflation in March surprised on the upside last week. The market currently prices a 50% chance of a June cut, but if inflation and wages continue to surprise on the upside, rapid cuts will be much harder for the Bank of England to justify than for the ECB. We believe that high interest rates, persistent inflationary pressure, and resilient economic growth outline a rather positive picture for the pound in 2024.

Published this week, the April PMI indicators (

Tuesday 23.04) for the UK should be relatively good. It is increasingly clear that the British economy likely emerged from a technical recession at the beginning of the year, and Tuesday’s readings should show further expansion at the start of Q2.

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

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