Afternoon analysis 08.11.2017

The Polish currency gained before the MPC statement and press conference. No major changes on the dollar and the euro. The pound lost after reports of a possible departure of another minister in Theresa May's government.

Interest rates left unchanged. A stronger zloty

Today strengthening of the Polish currency was observed. Although the changes were within the fluctuation range that was present in the past few days, investors expectations of the Polish MPC to slightly tighten the message in the statement after the two-day meeting was visible in the market. As expected, the National Bank of Poland reported that rates were left unchanged.

The zloty gained around 3% in relation to the euro, the franc, the dollar and the regional forint. Against the pound, it was approx. 0.7%, although to a large extent it was due to its weaker global condition (it lost 0.5% to the dollar). The EUR/PLN tested the 4.23 level before 3 p.m., which was a lower boundary of the last two weeks trading. The statement after the two-day meeting of the MPC will be announced at 4.00 p.m. (there will also be a press conference with Adam Glapiński, President of the Polish MPC).

If the most recent data from the Polish economy (higher than expected inflation, wage pressure, GDP rate above 4%) lead the majority of the Council members to signal the possibility of an increase in interest rates before the end of 2018, the zloty could appreciate. This would even open the way for EUR/PLN quotations towards 4.20, the level which was last observed at the end of July this year.

The NBP's inflation projections may also be significant, some of them will also be presented today. The projected inflation exceeding the NBP inflation target (2.5%) may also have a positive impact on the zloty's valuation, even in the absence of a more hawkish statement from the Polish MPC.

On the other hand, leaving the statement unchanged, the lack of significant changes in inflation projections and the MPC repeating the "wait and see" attitude may have a negative impact on the Polish currency, and therefore, may consequently depreciate. In such a scenario, we can expect the EUR/PLN exchange rate to move towards 4.25.

Slight changes on the dollar

Today, the practically empty calendar in terms of important macroeconomic publications caused the main currency pair quotations to move relatively calmly. A small amount of pressure on the dollar (making further appreciation impossible) may cause problems with the tax reform project in the US Senate.

The Bloomberg news agency reported that another minister in Theresa May's government could leave the position, which weakened the pound. The British currency was losing around 0.5% against both the dollar and the euro. The new problems inside the UK Prime Minister's cabinet (that would be the second minister within a week) could raise concerns about the deterioration of the negotiating position in talks with the EU Brexit negotiators. Confirmation of Priti Patel's resignation (secretary of international development) could further exert pressure on the pound.

Tomorrow's preview

At 8.00 a.m., the Federal Statistical Office (Destatis) will present September’s data on the trade of goods of Europe's largest economy. In the previous month, the strongest increase in exports since November 2016 was observed - by 3.1% per month, while imports increased by 1.2%, which resulted in an increase in trade surplus to the highest level in ten months (21.6 billion EUR seasonally adjusted).

The median of market expectations assumes a decline in the surplus by 0.5 billion EUR to 21.1 billion EUR, mainly due to a 1.1% drop in exports compared to the previous month (with an increase in imports of 0.3%). Although this data is likely to have a limited impact on the euro's quotation, a surplus of more than 21.6 billion EUR (seasonally adjusted) could slightly strengthen its quotation in the absence of any other significant European publications on that day.

The European Commission, at 11.00 a.m., will present a quarterly report (autumn's forecasts) for EU countries. It will include the European Commission's expectations regarding, the rate of economic growth, inflation, unemployment and employment for both individual countries and the EU as a whole. Taking into account the recent data, the estimates of Poland's GDP growth rate may be revised upward, which could strengthen the Polish zloty.

In turn at 2 p.m., the US Department of Labor will publish a weekly report on initial jobless claims. Over the last two months, this data has been affected by the hurricanes that have hit some US states. At the beginning of September, the number of jobless claims amounted to 298k, i.e. the highest number for over 2.5 years, while five weeks later claims decreased to 223h which was the lowest level in 44 years.

Last week’s report also showed that the number of insured unemployment decreased to 1.884 million, the lowest count since 29 December 1973. Two months after the hurricanes occurred, their impact on the American labour market is gradually decreasing. Therefore, the impact of this data on the dollar, although limited (this data is rather second-tier), may be slightly higher than in the previous weeks in the case of a significant deviation from the consensus. Currently, the median of market expectations assumes similar values to those of last week (initial jobless claims: 231k, number of insured unemployment: 1.89 million).