Inflation didn’t surprise (Afternoon analysis 13.03.2018)

13.03.2018 15:39|Bartosz Grejner

The long-awaited data on inflation from the US market came in line with expectations. The zloty was still weakened despite no increase in inflation pressure in the US.

Zloty still weak

The Bureau of Labor Statistics (BLS) published today the much-anticipated consumer inflation (CPI) data in the USA in February, however, they failed to surprise. Core inflation (excl. food and energy prices) was the most important index from the BLS report, as it can give hints to the future level of inflation in a much a better way than the headline index. The core inflation was 1.8% year-on-year and 0.2% month-on-month in February, very much in line with market expectations in both cases.

After the BLS report, the dollar began to lose value. The main currency pair (EUR/USD) moved up from approx. 1.234 to nearly 1.24. This was probably due to apprehension that the CPI reading could be 1.9% or more, which could strengthen the dollar and also cause a sell-off in the equity and bond markets.

The zloty’s reaction to the macro data from the US was mainly limited to the USD/PLN pair. After the inflation report was made public the dollar was priced at 3.40 PLN, however, it was nearly 3.42 PLN at midday. Nevertheless, the zloty was generally in a slightly worse condition today. The EUR/PLN pair moved up above 4.21, to the upper boundary from the last three weeks’ trading. The Polish currency lost approx. 0.2% (at 3 p.m.) to the pound and franc. Zloty weakness was also evident when compared to the Hungarian forint, which gained 0.3% - the PLN/HUF pair fell below 74 for the first time since the end of January.

This was probably the aftermath of a lowered probability of an interest rate hike this year in Poland, after the last dovish meeting of the Monetary Policy Committee and worse than expected macroeconomic data (deficit in international trade). The calendar of planned publications for today is virtually empty, so the chances of significant change in zloty value are rather limited. The market could yet price in the change in the Secretary of State post in the White House – Rex Tillerson was replaced by Mike Pompeo (former CIA director). Gino Haspel will be the first woman to ever become the director of the CIA.

However, ultimately, the probability of significant changes in the currency market attributed to the above fact is limited. The zloty should also be relatively stable until the end of the day and oscillate around current levels.

Tomorrow’s preview

At 11 a.m. Eurostat will publish January’s data on industrial production in the eurozone. The end of last year was really positive in this respect. The sector’s output increased by 5.2% year-on-year in December, posting the biggest gain in 6 years, and the growth rate didn’t fall below 3% in any month of the second half of 2017. The median of market expectations points towards a yearly increase of 4.7% in January. Surpassing this level could not only slightly strengthen the euro but also improve market sentiment (which has generally been positive for the zloty).

Two and half hours later February’s retail sales data in the US will be published. They failed to meet market expectations a month earlier when sales fell by 0.3% on a monthly basis (the biggest drop since February 2017). This February, however, an increase of 0.3% month-on-month is expected and a relatively less volatile core index (excl. vehicle sales) is expected to gain 0.4%. However, the impact of this data on the dollar could be limited. The market currently focuses on inflation and wage growth with the addition of comments from FOMC members, in order to assess the probability of more rate hikes this year (four or more).


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

See also:

13 Mar 2018 12:41

Weaker zloty (Daily analysis 13.03.2018)

12 Mar 2018 15:15

Zloty starts with falls (Afternoon analysis 12.03.2018)

12 Mar 2018 12:32

Disturbing foreign trade (Daily analysis 12.03.2018)

9 Mar 2018 15:58

No increases for dollar (Afternoon analysis 09.03.2018)

9 Mar 2018 12:35

Attention focused on the USA (Daily analysis 09.03.2018)

8 Mar 2018 14:41

Stable zloty today (Afternoon analysis 08.03.2018)

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