Current situation supports zloty (Afternoon analysis 22.11.2018)

Better than expected retail sales data supports the zloty. The EUR/PLN goes down in red again below 4.30. The fluctuations of the pounds continue. This time positive data reduces the chances of a hard Brexit.

Euro and dollar are stable

Another set of good data from the Polish economy. Retail sales in fixed prices increased by 7.8% y/y, 2 percentage points above the market consensus. This may suggest that fears of a greater than expected slowdown in GDP growth pace may have been somewhat overstated. Today's positive sales data in October is in line with a similar trend as in the case of data from the industrial sector or the labour market. Although the data for the first month of the last quarter and publications for November will be important in this context, the chances for a good GDP reading for the Q4 have increased.

Higher probability of this may support the zloty in the coming weeks, despite negative information concerning the Polish financial supervision, especially if there is no dollar appreciation. The situation on the equity market has also calmed down somewhat and the potential growth in the global equity market, resulting in improved global sentiment and lower risk aversion, may also have a positive impact on the zloty.

The zloty's quotations in relation to the main currencies are a reflection of its slightly better situation. Around 4:00 p.m., the EUR/PLN was slightly below 4.30, close to the lower quotation limit recorded last Friday. Similar trends could be observed in the relation between the zloty and the Swiss franc or the dollar. The exception was the pound. The GBP/PLN exchange rate rose to just over 4.86 when information started to flow in about changes made by negotiators from the United Kingdom and the EU (mainly on the Irish border), which may reduce the probability of an unordered Brexit.

The calendar of scheduled macroeconomic events for the rest of the day is practically empty; therefore the chances of significant zloty fluctuations in relation to basic currencies are low. The turnover is also slightly lower due to the US holiday today and tomorrow. If nothing unexpected happens, the core scenario until the end of this week remains the stabilisation of the zloty, the euro and the dollar on the global market.

Tomorrow's preview

On Friday, the most important publications will be the preliminary data of the IHS Markit PMI indexes of industrial and services sectors for the eurozone. At 9:15 a.m. the data will be available for France, a quarter of an hour later for Germany and at 10:00 a.m. for the eurozone as a whole. Excluding the index for the industrial sector in Germany and the eurozone (where no change is expected), the median of market expectations in other cases indicates a decrease of 0.1 - 0.3 points, also among the aggregate indexes.

The euro's quotations in relation to the main currencies have stabilised in recent days. If data does not differ significantly from consensus and previous values, IHS Markit publications may be neutral for the currency market, especially as volatility may be limited because of the absence of some US investors (a trading day off on the US markets). Therefore, it is likely that the zloty's quotations should also be stable and should not show any significant changes in value.