Afternoon analysis 02.01.2018

The global dollar weakening resulted in the USD/PLN to drop to the lowest level in three years, slightly below 3.45 PLN. Good PMI readings from the eurozone supported the euro exchange rate, which gained nearly 2% in relation to the dollar over the last 4 trading days.

Stronger zloty

The first session of the new year was exceptionally successful for the Polish currency. The continuation of the global dollar weakening caused the value of one dollar to fall even slightly below 3.45 PLN, a lower USD/PLN level was observed just before the Christmas season in December 2014.

The weaker condition of the US currency combined with good PMI readings from the eurozone and Poland contributed to a decrease in the EUR/PLN quotations to the lowest level since the end of May close to 4.16 PLN. In turn, a decrease below this level may mean that new, nearly 2.5-year-old lows may be defined.

In the next few hours it will be difficult for the dollar to find the support that could reverse this negative trend. At 3:45 p.m. PMI data from the US industrial sector will be published, but the impact seems to be limited.

This will be the second (final) reading of this data, moreover, ISM data for the US economy is relatively more important (for dollar quotations). The market consensus assumes a reading at a 55 point level, similar to the preliminary data. A reading clearly above this level, although unlikely, could give an argument to the US dollar to recover, which could also result in the zloty giving up a part of its profits.

EUR/USD close to 1.21 boundary

The weakening wave of the dollar on the first trading day in 2018 caused the price of one euro to come close to three year highs. Today, the EUR/USD quotations have increased to around 1.208. Only in the last four trading days (including today) has the dollar depreciated by nearly 2% in relation to the euro. Although from a fundamental point of view, the dollar will probably appreciate in relation to both the euro and the zloty this year due to planned increases in interest rates and fiscal stimulation (lower taxes), the current absence of inflationary pressure in the US has a negative effect on it.

This may change on Friday when the US labour market report for December will be published. The most important may be data on changes in the average hourly wage. Most likely, its slight increase above consensus (2.5% per year) could result in a significant dollar appreciation, with the simultaneous increase in employment around 190k-200k.

Tomorrow's preview

At 2.00 p.m., the Polish Central Statistical Office (GUS) will present December's preliminary estimate of the consumer inflation (CPI) level in the Polish economy. In the previous month, it increased to 2.5% per year, but this was caused by the increase in food and fuel prices. The median of expectations indicates that the average price increase may amount to 2.2% per year and 0.3% per month. Although a higher than consensus reading could slightly strengthen the zloty, this impact would probably be limited. Only complete data with category breakdowns (which will be published in about 2 weeks) can be used to assess whether the impact of energy and food prices will have a more significant impact on the Polish currency quotations.

Wednesday can be an important day for the dollar. The rapid weakening of the US currency, which has been currently observed, has pushed the EUR/USD quotations to nearly 1.21 level, around 3-year highs. At 4.00 p.m., December's data of the ISM industrial sector activity index in the USA will be published. In September, its value rose to 60.8 points to slightly more than 6-year records, although in the following two months this index somewhat decreased. Market expectations indicate that the ISM index will also decrease slightly (by 0.1 points) to 58.1 pts. in December.

Reading close to 60 points could strengthen the dollar and cause its appreciation. However, four hours later, a record of the last meeting of the Federal Monetary Reserve Committee (FOMC) discussions will be published. Although the so-called "minutes" are unlikely to bring unexpected information (the positions of individual members are known, inflation in the USA has been suppressed now), close to the publication time, an increase in the dollar's fluctuation could be observed.