The EURUSD pair’s increase yesterday was primarily due to the weakness of the US dollar rather than the strength of the Euro. The market has yet again intensified its speculation that the Fed will sharply reduce interest rates next week, although it’s hard to say that the mixed PPI data strengthened this view. The ECB didn’t surprise at all. They did the typical by easing monetary policy by a standard 25 basis points. The Polish zloty gained against both the euro and the US dollar.
Market tension is increasingly strained day by day. One day, the “hopes” for a drop by 50 basis points weaken, only for them to strengthen the next day. Market volatility is increasing, and despite any groundbreaking news, it appears as a lot is happening, but the situation is relatively stable in reality.
So far, the EUR/USD exchange rate has marked local lows at 1.10 and is heading higher. In the medium term, we have a pattern of a corrective decline, which increasingly resembles a “flag” formation, theoretically suggesting higher odds of continued gains. However, only a sustained move above 1.11 or 1.1140 would confirm this trend. A surge against 1.12 would be feasible if the Fed decides on a deeper cut. Any such move by the Federal Reserve should still be considered a considerable surprise.
But let’s return to the ECB. The decision to cut by 25 basis points was widely anticipated. A stronger adjustment in the refinancing rate also came as no surprise, as it had been communicated some time ago. Following Lagarde’s remarks at the press conference, it seemed like October would bring a pause in further measures. The significance of inflation falling to 2.2 percent in August was somewhat downplayed. The consistently heightened level of the base rate and continued wage growth were underlined. Furthermore, the ECB is likely to wait for the next set of forecasts, to be issued only in December. The latest core HICP projections for 2024 and 2025 have been slightly adjusted upwards. As for GDP, the forecasts are slightly reduced.
In all this market turmoil, the zloty gained value, which in my opinion was due to the weakness of the US dollar. Both the EUR/PLN and the USD/PLN rates declined. Today’s appreciation of the PLN is continuing. The rates of the former pair are dropping to 4.2812 and the latter to 3.8625. Today we will see the final CPI reading for August (the forecast predicts an increase to 4.3 percent YoY and a drop to 0.1 percent MoM) as well as the results of the balance of payments.
Łukasz Zembik Oanda TMS Brokers
Source: https://ceo.com.pl/zloty-zyskuje-na-tle-stabilnej-polityki-ebc-i-spekulacji-o-cieciach-stop-przez-fed-72558
