The Polish zloty (PLN) has shown notable strength this week, appreciating against the euro by approximately 4 grosze, reflecting a shift in market sentiment and expectations regarding monetary policy in Poland. As of May 9, 2025, the EUR/PLN exchange rate has decreased by about 0.9 percent, moving from nearly 4.28 PLN per euro on May 5 to approximately 4.24 PLN by Friday afternoon. Similarly, the USD/PLN exchange rate has also dipped by about 0.5 percent during the week, from around 3.78 PLN to 3.76 PLN.
Mirosław Budzicki, a market strategist at PKO BP, attributed the zloty's appreciation to the cooling of expectations surrounding interest rate cuts by the Monetary Policy Council (RPP). He noted, "The cooling of expectations for interest rate cuts by the RPP supported the appreciation of the zloty and led to a decline in domestic bonds this week." This sentiment reflects a broader market view that may have been overly optimistic about the extent of monetary policy easing in Poland.
Budzikci further elaborated that the EUR/PLN exchange rates broke down from a sideways channel that had been established between 4.26 and 4.30 PLN. He emphasized that the growing demand for risky assets in global financial markets has been a significant factor in strengthening the zloty over the past few weeks. However, this was not sufficient to break the previous consolidation until a key presentation by the President of the National Bank of Poland (NBP), A. Glapiński, on May 8, 2025.
During this presentation, Glapiński highlighted the adaptive nature of the recent interest rate cut of 50 basis points on May 7, emphasizing the limited scope for further changes in the second half of the year, which could amount to approximately 50 basis points. Budzicki noted that these comments contributed to a decrease in the EUR/PLN exchange rate, resulting in values dropping below 4.24 PLN by Friday.
Looking ahead, Budzicki expressed optimism about the appetite for risk in the coming weeks. He stated, "Looking at the market prospects, key information indicating that more countries are on track to conclude trade agreements with the USA will strengthen it." The anticipated discussions, including a scheduled meeting between the U.S. and China over the weekend, are expected to contribute to a decrease in tariffs, further enhancing market dynamics.
Additionally, Budzicki pointed out that the market is currently pricing in a more significant decrease in NBP interest rates for 2025 than is likely to occur, estimating a reduction of slightly more than 150 basis points, including a 25 basis point cut in June. He suggested that the market may retract from such aggressive bets, which would support the zloty.
From a technical perspective, Budzicki identified that the zloty's appreciation might encounter resistance around the 4.20 PLN mark, which he believes we are likely to approach in the coming week.
On the domestic interest rate market, the yield curve for government bonds has increased by approximately 20-30 basis points this week. Budzicki explained that this shift was influenced by two main factors: first, the Federal Reserve’s indication that it sees the need for a longer analysis of macroeconomic data before considering interest rate cuts, which led to a withdrawal from expectations for drastic reductions in the U.S. rates in 2025. This, in turn, created upward pressure on yields globally, including in Poland.
Secondly, the local market reacted to the RPP's decisions and comments. The initial decision surprised many, as the market had anticipated a more substantial cut than the 50 basis points implemented. The comments from the Council suggested that the recent adjustments in monetary policy should not be viewed as a cycle but rather as a necessary response to current economic conditions. Budzicki remarked that these developments significantly altered market expectations regarding future interest rate cuts.
Despite the significant changes in market dynamics, Budzicki believes that the yield curve for Polish bonds still has room to grow by about 20-30 basis points in the near term. He expects the upward trend to continue, bolstered by the increasing demand for risky assets globally. Investors are likely to continue withdrawing from expectations of substantial interest rate cuts in the U.S., where 2-3 moves of 25 basis points each are still being factored into the market.
Looking ahead, the Ministry of Finance is set to conduct a bond auction on May 14, 2025, with an offer between 5 and 10 billion PLN. Budzicki warned that the introduction of new supply during a challenging period could further amplify the increase in yields.
In conclusion, Budzicki anticipates that the yields on two-year Polish bonds will stabilize closer to around 4.70 percent, while the yields on ten-year bonds are expected to settle around 5.60 percent. As the zloty continues to strengthen and market dynamics evolve, investors and analysts will be closely monitoring developments in both domestic and international markets.
