Pound in the limelight (Afternoon analysis 15.11.2018)

The euro and the dollar are stable, but the pound records very large losses. Eurozone and US data are slightly better than expected and neutral for the EUR/USD. The zloty oscillates around yesterday's levels, but the GBP/PLN exchange rate is the lowest in more than two weeks.

GBP/USD below 1.28

The most important subject of the day for the currency market was the resignation of Dominic Raab, the fourth minister from the government of Prime Minister Theresa May. The pound lost even more than 1.5 % in relation to the dollar today, falling to approx. 1.2750, although yesterday it was almost 1.31. Rollercoaster in the positive and negative information for the pound valuation is likely to last several more weeks, although today the scale reverts to the other side as uncertainty around the shape of the Brexit rises.

The euro to dollar exchange rate stabilised around 1.13, with only a minimal change in relation to yesterday's closing rate. Slightly better than expected, by 1.1 billion EUR, data on the eurozone's foreign trade surplus was published today by Eurostat. The seasonally-adjusted surplus amounted to 17.4 billion EUR in October. Retail sales data for the USA in the same month also turned out to be above consensus. Both the main reading and the core reading (excluding vehicles and fuels) grew at a rate 0.2 percentage points faster than market expectations, increasing by 0.8 and 0.7 per cent per month, respectively. As a result, the impact of macro data on the EUR/USD quotations was neutral.

Although the baseline scenario is still the dollar's appreciation in the longer term, market factors that we are currently observed (e.g. a sharp drop in oil prices, reduced fears of a trade war between the USA and China) are in favour of easing the pressure on the dollar, at least in the short term. On the other hand, there is still a risk of Brexit or a dispute between Italy and the European Commission over the budget. Escalation could quickly lead to a significant fall in the euro's value and appreciation of the dollar.

The EUR/USD stabilisation and the better than expected recent data from Poland (GDP, inflation) help the zloty to maintain a relatively good price. Today, the EUR/PLN was quoted between 4.29 and 4.30, just like yesterday. In relation to basic currencies, the zloty remained close to yesterday's levels. The exception was the pound. The GBP/PLN exchange rate fell even slightly below 4.85 PLN today, to its lowest level since the end of October. In the case of this pair, we can expect the biggest fluctuations in the coming weeks.

Tomorrow's preview

At 11:00 a.m. Eurostat will publish data on consumer inflation (CPI) in the eurozone in October. This will be the second reading of the inflation indexes; therefore the chance of significant deviations from the initial estimates is low. However, if the more important core index (excluding energy, food, alcohol and tobacco prices) deviates from 1.1% y/y, we can observe an increase in the euro volatility range. Although the potential change of 0.1 percentage points will not change the ECB's monetary policy, the increase to 1.2% (or higher) would be the highest level of core inflation since July and could give some support to the weakened euro.

At 3:15 p.m., the Federal Reserve will present industrial production data for the USA in October. The market consensus assumes an increase of 0.2% per month, marginally lower than in September (0.3). This is another important data for the dollar. However, in the context of current market conditions, the final impact of this publication will be limited.