PLN: Zloty Creeps Higher, Participants Assess Geopolitical Risk
EUR/PLN has inched lower as CE3 currencies pace gains in the EMEA FX space, with signals of a possible resumption of US-Ukraine talks and reports suggesting that the US continues to provide aid in some key areas other than military equipment (e.g. intelligence and communications) may have assuaged some concerns. On the other hand, uncertainty around the outcome of potential negotiations and the implications for regional security remains elevated, keeping CEE assets vulnerable to swings in geopolitical risk.
- When this is being typed, the rate deals -45 pips at 4.1611 and bears look for deeper losses towards recent cyclical lows (4.1272) and the next round figure (4.1000). Bulls eye the 50-EMA (4.2045) for initial resistance. Meanwhile, USD/PLN is posting sharp losses for the third day in a row amid a broad-based greenback sell-off, falling through the 3.90 figure and hitting new cyclical lows.
- There is little of note on the Polish economic docket until the announcement of the NBP rate decision next week. The central bank will most likely keep interest rates unchanged but the release of an updated inflation projection may be a pretext for the Monetary Policy Council (MPC) to revisit the debate on the interest-rate outlook.
- POLGB curve sits higher and runs steeper, despite ticking away from their earlier highs. The WIG Index has added 2.5% and the WIG20 Index is 3.2% better off.
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GILTS: /SWAPS: J.P.Morgan recommend 10-Year swap spread wideners.
J.P.Morgan recommend 10-Year swap spread wideners.
- They suggest that relative narrowness in the “10-Year swap spread on valuation frameworks likely reflects a combination of: 1) upcoming 10Y syndicated gilt supply in February with a new gilt Mar35 planned for w/c 10 February, and 2) markets pricing in some uncertainty around increased gilt supply at the March OBR forecast update and DMO remit announcements.”
- However, they stress that this is “very much a tactical short-term view as the ongoing BoE APF reduction and likely upward skew to gilt issuance expectations should put narrowing pressure on 10Y swap spreads over the medium term.”
EUROZONE DATA: Upward Revision To Jan Manufacturing PMI, Employment Signals Weak
The Eurozone manufacturing PMI saw a five tenth upward revision to 46.6 (vs 46.1 flash, 45.1 prior), driven by a notable upward revision in Germany to 45.0 (vs 44.1 flash).
- Both new orders and production saw smaller declines than in December, helping the EZ aggregate tick higher. Spain and Greece continued to outperform Eurozone peers.
- Downticks in industrial employment were noted across the four major Eurozone economies. From the EZ release: “Employment levels were cut further at the start of 2025, with the rate of job shedding accelerating fractionally. This marked a twentieth successive month that factory staffing numbers have declined”.
- There was an acceleration in input cost price pressures in January, and business “refrained from passing on higher costs to their customers”, bringing a “four-month sequence of discounting to an end”.
- December industrial production data is due from France (Weds), Germany (Fri) and Spain (Fri) this week.
BUNDS: Curves Steepen Towards Next Upside Levels
The dovish repricing linked to tariff-related growth worry promotes bull steepening on the German curve this morning.
- 2s10s within 0.5bp of the October 21 ’22 high (36.7bp).
- 5s20s ~3bp off the ’24 treble top area (~51.1bp).
- Levels above are based on closing prices.
