Geopolitical concerns due to tensions between Russia and Ukraine have had an impact on the Polish Zloty for the first time in two years. Other factors, including the ongoing “Trump trade,” also don’t favor the currency. Despite this, the Zloty remains fairly resilient, even as its environment becomes more challenging.
Key Points:
– The Polish Zloty has been under pressure, although it is currently making up for losses.
– The Euro significantly decreased with the PMI indicating a contraction in the Eurozone’s economy.
– Trump’s appointed government officials are causing uncertainty related to US policy.
– The autumn budget burdens business activity in the UK.
Last week, the “Trump trade” slightly diminished as bargain hunters bought up its victims, including government bonds and select emerging market currencies that depreciated due to post-US election selloffs. Trump appointed Scott Bessenta as the US Treasury Secretary, a well-known fiscal hawk who has a distaste for deficits. He had criticized Federal Reserve policy as overly lenient, making one question how inflationary Trump’s second term will be. In the spotlight, however, was the Euro. It took a hit following weak November PMI data and ended the week as one of the weakest major currencies.
Bessenta’s nomination increases uncertainty relating to the economic policy resulting from the Republicans’ election win, from tariffs to fiscal and monetary policies. This uncertainty seems to have temporarily hampered the dollar’s lead. This market week in the US is significantly shortened due to Thanksgiving. News from major economies will be sparse, with the most critical being popular November inflation reports in the Eurozone on Friday (November 29th). A higher than expected reading could raise concerns of stagflation, which would be quite troublesome for the European Central Bank. Attention will also focus on Bessenta’s views and potential changes in tariffs and fiscal policy that he would like to implement.
PLN
Tensions between Russia and Ukraine increased last week, weighing on the Zloty for the first time since the end of 2022. This was another in a series of negative factors for the Polish currency in recent times, such as the “Trump trade,” which, however, is becoming increasingly nuanced. Bessenta’s appointment allowed the Zloty to recover some of its losses at the beginning of the week. It seems that the aforementioned tensions will not continue to rise.
In general, the Zloty is quite resilient, but its environment has become more challenging. Domestic news also remains somewhat negative, strengthening the prospect of significant monetary policy easing in 2025. Last week brought disappointing secondary data (consumer confidence and construction output), but this week started off significantly better with a strong increase in industrial production. Upcoming are critical data releases: retail sales (Tuesday, November 26th) and initial November inflation (Friday, November 29th). We expect the latter to show a decrease, and news about a further freezing of energy prices for households for nine months in 2025 suggests that the inflation path should be flatter in the medium term. It will be interesting to see how the NBP reacts to this, as it will be one of the key aspects of communication after next week’s meeting.
EUR
Poor PMI indicators published last week reignited speculations that the ECB would implement a significant interest rate cut by 50 basis points in December. Markets currently price in a 50% chance of such a move and expect a total of five cuts of 25 basis points each within the four following bank meetings. As a result, the Euro fell to its lowest levels since achieving parity with the dollar in 2022. However, it did bounce back a bit after Trump’s orthodox Treasury Secretary selection.
USD
Last week, the dollar strengthened against most major currencies. This was due to market anxiety about Putin signing a revised nuclear doctrine and further divergence in economic performance on both sides of the Atlantic, as November’s PMI data pointed to another month of strong growth. However, the dollar’s appreciation largely slowed down, despite a temporary fall in the Euro to below 1.04. It seems that for now, yield rates have reached their peak with Trump’s hawkish Treasury Secretary pick and the 10-year bond yields increasing from 3.6% to almost 4.5% within a mere two months.
GBP
November’s PMI readings for business activity in the UK, released last week, were weaker than expected, almost indicating stagnation. They affirmed businesses’ skepticism about Labour’s budget, particularly the significant increase in employee insurance contributions, which is believed will lead to weaker employment activity and higher consumer prices. As with the Eurozone, it’s possible that the Republicans’ win in the US might have influenced UK businesses’ sentiment. However, the UK’s independence suggests that this effect will likely be minimal and hopefully temporary.
Authors: Enrique Díaz-Alvarez, Matthew Ryan, Roman Ziruk, Michał Jóźwiak – Ebury analysts
Source: https://ceo.com.pl/slabe-dane-pmi-pograzaja-euro-a-zloty-staje-przed-nowymi-wyzwaniami-27741
