In order to fight the fear of recession and to avoid even bigger equities sell-out, the American central bank decided to decrease the main federal funds rate to 3.50% from the previous 4.25%.  It was a surprising move since the FOMC was expected to meet and decide on interest rates on January 30^th. Financial markets reacted instantly. The EUR/USD, which was on the decline reaching even $1.4370 during the week, rebounded and finished the week at $1.4710. A weaker dollar also helped the GBP/USD, which climbed all the way to $1.9830 from $1.9340. Now much will depend what the Fed will do on the scheduled meeting at the end of July. Another interest rate cut, even by 50 basis points, is very probable.

The Polish Złoty gained after the FOMC decision. Risk aversion declined and investors were more willing to invest in emerging markets like Poland. The good condition of the Polish economy was confirmed by macroeconomic reports: retail sales increased by 12.4% and unemployment rate was at 11.4% (as forecasted). Net inflation increased to 1.7% against the 1.6% analysts expected increasing expectations for an interest rate hike. All those factors combined caused the Złoty to strengthen against major currencies. The USD/PLN declined from zł.2.5420 to zł.2.4520 while the EUR/PLN dropped from zł.3.6630 to zł.3.6090.

Adam Narczewski