Stable zloty, weaker dollar (Afternoon analysis 14.11.2018)

Slightly better data from the eurozone and somewhat worse data from the USA contribute to an increase in EUR/USD quotations. The weaker dollar and good data from Poland allow the zloty to remain in relatively good shape.

Core inflation fails to meet expectations

Wednesday's quotations on the currency market were positive for the Polish currency. The zloty was supported by unexpectedly good macroeconomic data from the Polish economy (GDP, inflation). The weakening of the dollar and the rise in the EUR/USD exchange rate, which in the afternoon exceeded 1.13, also helped. Macroeconomic data was also favourable for the euro today. Industrial production grew by 0.9% y/y in the eurozone, although the growth pace was expected to be 0.6% lower.

Core inflation data (excluding energy and food prices) in the USA failed slightly. The core index was 2.1% y/y, 0.1 percentage point below market consensus. Although this is unlikely to change the Federal Reserve members' approach to raising interest rates in any way, in the context of the recent rapid dollar appreciation, today's set of data speaks in favour of euro appreciation.

However, there are still issues that will prevent the single currency from appreciating. These include Italy's budget and Brexit, in other words, issues that will not be resolved in the coming weeks and will have a significant impact on the euro and the pound, and indirectly on the zloty.

Clearly better data published today from Poland may rejoice and strengthen the zloty in the short term, but it practically changes nothing in the longer term. The components of GDP are not yet known (and such a significant increase could have been caused by stocks), and slightly higher than expected inflation will not intensify the Monetary Policy Council's dovish approach to raising interest rates. As a result, the zloty basket should be relatively stable today (EUR/PLN is quoted around 4.29 - 4.30), but in the long run, the Polish currency will continue the downward trend.

Tomorrow's preview

At 10:30 a.m., the Office for National Statistics (ONS) will publish data on October retail sales in the UK. The median of market expectations indicates that the growth rate will remain at 3.0% y/y and will increase by 0.1 percentage point to 3.3% in the case of a more important core reading (excluding sales of vehicles and fuels). The pound is still subject to significant fluctuations due to Brexit. This is the subject that will have the greatest impact on the British currency in the coming weeks, and macroeconomic publications will have a smaller impact than usual. However, retail sales may give a good picture of consumption, which in turn is the main component of GDP. Therefore, around publication, an increase in the fluctuation range of the pound can be expected, especially if there is a deviation from consensus, although the final impact of the data is likely to be rather limited.

Half an hour later, Eurostat will present the eurozone's external trade balance sheets in September. The market consensus indicates a (seasonally-adjusted) surplus of 16.3 billion EUR, 0.3 billion less than a month earlier. The data should have a limited impact on the euro quotations. However, given the significant euro depreciation in recent days, a much better than expected result (by 3-4 billion or more) could strengthen the single currency.

The National Bank of Poland (NBP) will publish data on core inflation in October in Poland at 2:00 p.m. The median of market expectations indicates an increase in inflation, excluding energy and food prices, by 0.1 percentage points to 0.9% per year. Today, the zloty received support in the form of higher than expected inflation and GDP growth pace. If more important data on core inflation is also a positive surprise, the zloty may gain in value, especially if a further rebound on EUR/USD is observed.

At 2:30 p.m., the Census Bureau will also provide data on US retail sales in October. Sales excluding vehicles (core index) are expected to increase by 0.5% on a monthly basis, against a decrease of 0.1% in September. Although this is relatively important data in the context of the dollar, given the current market situation, it will have limited impact on its quotations.