French bond market turmoil puts pressure on Central and Eastern European currencies

⑴ The global bond market sell-off led by France has spread to Europe, creating a challenging external environment for Central and Eastern European (CEE) currencies. JPMorgan believes that rising core yields, a weakening euro, and heightened geopolitical uncertainty together form an unfavorable mix for CE3 currencies. ⑵ In Poland, President Karol Nawrocki has signed into law a windfall tax on energy companies, imposing a 60% tax on fuel income exceeding a set threshold. The government plans to use these funds to lower oil prices. ⑶ JPMorgan expects fuel price cuts will temporarily reduce overall inflation in Poland, with rate reactions mainly concentrated at the front end. Some already-priced tightening expectations may subside, potentially weighing on the zloty in the short term.