Exchange rates on 4/28: the euro fell sharply

Risk aversion continued on Wednesday in financial markets, which led to further weakness of the Polish zloty against the dollar (USD/PLZ broken 4.47).

With the emptiness of the macroeconomic calendar, attention has focused on the energy security of European countries, which has been called into question after cutting off gas supplies from Russia to Poland and Bulgaria. Concerns about gas shortages in Poland in 2022 due to the filling of storage facilities and the planned withdrawal of Russian imports in 2023 reduced the pessimism towards the Polish currency a little. Therefore, we did not observe a significant depreciation of the zloty compared to other CEE3 currencies, such as the forint and the koruna. However, the global aversion to risky assets and the exposure of Central and Eastern European countries to the war-related events in Ukraine caused the zloty pairs to rise. Until the MPC meeting, an unfavorable development of geopolitical events will favor maintaining the EUR/PLN and USD/PLZ rates above 4.65 and 4.30 respectively, as the pairs remained for most of April.

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These concerns about Europe’s energy security are reflected in the outlook for economic growth. The German government has lowered its GDP growth forecast to 2.2% in 2022 from 3.6% previously seen. Moreover, these forecasts do not take into account the ban on energy imports from Russia or the ban on gas supplies, and implementing these scenarios would risk stagnation. With the development of unfavorable events in Europe and expectations of the Fed’s tough stance at the May meeting, the EUR/USD exchange rate fell to around 1.05, the lowest value since the first months of 2017.

In the interest rate market, Wednesday saw an upward bias for yield curves. Similar changes in quotations were observed in other countries of the Central and Eastern European region. Sentiment deteriorated due to information about the suspension of gas supplies from Russia to Poland and Bulgaria, as well as the launch of conditional measures towards Hungary by the European Commission.

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On Thursday, the most interesting event will be the release of preliminary data on inflation for April in the eurozone. Since the beginning of 2022, it can be seen that the increasingly strong inflation growth in Europe is weighing on bond valuations. The fact that the readings are not only showing an ongoing uptrend, but are also higher than expected, can be particularly disturbing. Looking at the forecasts of economists, it can be seen that inflation in April will stabilize at levels close to March. On Thursday we will see the readings in Spain (consensus: 9.0% yoy vs. 9.8% in March) and in Germany (consensus: 7.6% yoy vs. 7.6% in March).

In addition, data for the entire Eurozone will be released on Friday, where inflation is expected to rise to 7.5% y/y versus 7.4% previously. If this data is confirmed, it will be a good sign for Polish bonds ahead of Friday’s local release of CPI data. It will underline the slowdown in price pressures in Europe, although prices for raw materials, especially agricultural materials, will continue to rise. Although these trends do not need to be confirmed in Poland, they increase the likelihood of the scenario assuming that inflation will peak in Q2/3Q 2022. With such a scenario, further revenue growth should be halted in the case of the biennium Polish bonds are close to 6.75% and for 10 years are close to 6.30%.

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