Daily analysis 02.01.2017

Series of good economic data from the eurozone but the EUR/USD pair is back below the 1.05 level. This week will be an important one for the US currency. The zloty has been losing in value, although the PMI should support the domestic currency. The EUR/PLN was briefly above 4.43.

The most important macro data (Central European CET time). Estimates of macroeconomic data are based on information from Bloomberg unless stated otherwise.

• Lack of economic data which could significantly affect the analyzed currency pairs

Positive PMI

In the middle of last month, IHS Markit published preliminary December manufacturing PMI data for the eurozone. At that time learned that the readings were the highest since April 2011. Today, these data were confirmed. Indicators for Spain, Italy, Austria, the Netherlands and Greece were published as well.

In fact, in all these countries (except Greece), the same scenario has been observed. The production, orders (including export) and the employment all improved. A noticeable increase in producer prices was also reported. The indicators reached their highest level in 68 months, both in the Netherlands and Austria. The improvement was also evident in Italy and Spain.

In a summary of the reports, IHS Markit’s chief economist Chris Williamson pointed out that the current PMI readings were consistent with an increase in production by 4 percent on annual basis. Such high results in the eurozone were seen before the debt crisis, in mid-2011. Currently, the industrial production has been growing only at a rate of 0.6 percentage points and there is only a small chance for a rapid rebound.

Apart from this fact, the data must be perceived positively. They allow for an optimistic look at the region at the beginning of 2017. They are good in the context of the domestic economy as well. A good economic situation of our main trade partners virtually guarantees that Poland’s condition will be noticeably improved, perhaps even before the second half of 2017.

Coming back to Williamson's observations, surveyed entrepreneurs emphasised that much of the recovery is associated with a decrease in value of the euro, which helped to maintain export competitiveness. Head of Markit economists also recalled the political risks (elections in the Netherlands, Germany, France) which may "intensify political uncertainty in the region in 2017."

As for the currency market reaction to the data, there has hardly been any. This has been partly due to the fact that preliminary data from the eurozone were already known in mid-December. Secondly, the market rather returned to the levels from before the mysterious EUR/USD increase, which we saw on Thursday night. The final cause of the main currency pair slides may also be events in the USA scheduled for the coming days.

An additional support for the dollar?

First days of the new year may be important for the US currency. Apart from tomorrow's ISM manufacturing data, "minutes" from the December FOMC meeting will appear on Wednesday, and the Labor Department will release data on employment, wages and the unemployment on Friday.

According to us, "minutes" may confirm the FOMC turning towards a more hawkish path. It seems that the Fed discussion record could include a lot of arguments suggesting a relatively high probability of fiscal policy easing by the new US administration. It would then confirm an increase in the interest rate median from two to three this year.

It is also quite likely that the dollar’s rising value was assessed rather as a result of the improving economic situation in the US than a cause for a greater concern. It would also be a positive signal for the USD. If the macro data do not disappoint with a relatively hawkish "minutes", it might be a good week for the US currency.

Good data but the zloty is weak

Along with good readings from the eurozone, positive publications from Poland were finally released. The manufacturing PMI rose to its highest level in 17 months and reached a value of 54.3 points. IHS Markit drew attention to the "rapid growth of production, new orders and employment, and the renewed expansion of export."

Taking into account the broad economic recovery (except for Hungary and Greece), chances for the economic activity in our country to accelerate are rising. It may also be an argument for the MPC to slowly change the monetary policy attitude towards a more hawkish one, especially that according to IHS Markit, "a higher cost burden forced the Polish producers to increase the prices by the steepest margin since 2011."

Hence, the next week's MPC meeting may be important. If the Council begins to pay attention to a price pressure and assesses that the chances of an economic rebound are high, the more hawkish part of the MPC may begin to suggest interest rate increases. It would be a positive signal for the zloty, which could be the catalyst for the EUR/PLN to decline to 4.35-4.40 range in the middle of the month, especially if rating agencies left Poland’s credibility unchanged on January 13. As for today's PLN depreciation, it is rather due to the poor liquidity than the foreshadowing of a next wave of the domestic currency weakening.