Data failed expectations, but euro remains stable (Daily analysis 17.12.2018)

The currency market awaits Wednesday's events in the USA. The British Prime Minister criticises the idea of a second referendum. Changes in the zloty are slight.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 2:00 p.m.: Core inflation in November in Poland (estimates for the core index: +0.7% y/y).

Slightly weaker inflation

The week before Christmas started relatively calmly in the currency market. Before midday, the dollar lost a little after reaching 1.5-year records on Friday, when the US currency index (DXY) exceeded 97.7 points. The main currency pair (EUR/USD) quotations rose to nearly 1.1350 (on Friday they closed slightly above the 1.13 limit) before midday.

In turn, the euro did not react negatively to slightly worse than expected inflation data. Today Eurostat published the second reading for November. The most important inflation index - the core index (excluding energy, food, alcohol and tobacco prices) amounted to 1.0% per year, but on a monthly basis, the index fell by 0.3%, 0.1 percentage points more than expected. The headline index reading was also lower (1.9% per year).

Although today's publication may indicate that wage growth pace does not exert as much pressure on inflation as Mario Draghi (head of the ECB) would expect, and the pace of return to the target may be somewhat slower, it is unlikely to have a significant impact on quotations. The market awaits Wednesday's events related to the Federal Reserve (Fed).

Wednesday crucial for dollar

0.25 percentage points will raise interest rates. New macroeconomic projections will be published, and a press conference with the President of the Fed will be held. Therefore, we can expect significant fluctuations in dollar quotations on Wednesday evening. Until then, basic currency quotations will remain within a rather limited fluctuation range, and there will be no spectacular changes.

The pound will continue to be under significant fluctuations due to Brexit. Around midday, the British currency was relatively calm given the fluctuations of last week. Since the postponement of Parliament's vote on the Brexit plan, there have been voices in favour of a second referendum. However, the British Secretary of State for International Trade, Liam Fox, ruled out such a solution today in an interview with the BBC. According to Prime Minister Theresa May's speech (also published today), she will fight against this idea as she says that "it would further divide our country at the very moment we should be working to unite it".

Market expectations of the Fed's statements and limited changes in the main currencies' valuation have also translated into calm zloty's quotations. Its changes in relation to the main currencies were minimal, oscillating around closing levels on Fridays. The EUR/PLN exchange rate was moving around 4.29, the lower fluctuation range of the last week. Today at 2:00 p.m. the NBP will publish data on core inflation in November in Poland. The data may have an impact on the zloty's quotations (rather limited) in the event of a deviation from the consensus by 0.7%, although external factors will continue to determine the zloty's quotations.