Afternoon analysis 09.01.2018

09.01.2018 15:28|Bartosz Grejner

The dollar has been paring recent losses, its appreciation caused a fall of the EUR/USD pair to around the lowest level for nearly two weeks. The zloty lost due to the global appreciation of the US currency and may be in worse shape in the following days.

Zloty under strong dollar pressure

The continuation of dollar appreciation that has been seen today was clearly to the detriment of the Polish currency. The EUR/USD quotations fell to 1.192, the lowest level since December 28th. The euro lost in relation to the dollar despite very good macroeconomic data both yesterday and today from the euro area, with a slightly worse than expected data from the US (Friday's labour market report).

The main difference lies between monetary policy approach of both regions central banks. While everything suggests that the Federal Reserve in the US will increase interest rates this year, the probability that the European Central Bank will do the same is strongly limited (the ECB is still continuing its bond-buying program).

Most likely market participants are measuring this difference, which should be in favour of the dollar. Dollar appreciation may continue if consumer inflation reading (Friday) is positive. In particular, core index (excluding energy and food prices) exceeding the 1.7% level may be a signal for it.

This could be a negative signal for the zloty, which has been depreciating in relation to the main currencies. The price of one dollar came close to 3.51 PLN today, while during Friday daytime it was by 0.08 PLN lower. The zloty lost a little less in relation to the euro - its exchange rate increased to about 4.18 PLN today, while Friday's lows were 0.04 PLN lower.

Zloty valuation over the next few hours depends mainly on the dollar's behaviour. Its further strengthening may cause greater pressure on the Polish currency. The calendar of scheduled events for the rest of the day is practically empty. At 4.00 p.m., the Bureau of Labor Statistics (BLS) will publish the JOLTS report, which includes the number of vacancies in November.

The consensus indicates an increase to 6.04 billion, although the impact on the dollar from this data should to be limited. This is rather secondary data in terms of its impact on the US currency's quotations. An additional factor in the case of a weaker zloty may be market expectations regarding the Monetary Policy Council's statement tomorrow, which may be dovish and weaken the zloty (more detail below).

Tomorrow's preview

At 10:30 a.m., the Office for National Statistics (ONS) will publish November's data on industrial production, production in the construction sector and trade balance data. Industrial production turned out to be better than expected in the previous five months - exceeding market expectations and increasing the growth pace (annual rate) in each subsequent month.

The market consensus indicated a slowdown in production growth pace from 3.6% to 1.7% per year in the case of overall production and from 3.9% to 2.8% in its biggest component, manufacturing production. Taking into account the trade balance, the two previous months were positive. The median of market expectations assumes maintenance of this trend and continuation of the deficit for three consecutive months below 11 billion GBP (exactly: 10.5 billion GBP).

In turn, construction production has been worse than expected in recent months. Activity in October fell by 0.2% in relation to October 2016, which was its second decline this year. Market expectations suggest another decline in production (annualised) in November - a decrease of 0.8% is expected. However, if once again the data on industrial production and foreign trade surprise positively, the pound may appreciate, even though activity in construction production has declined.

Around midday, the MPC's decision on future interest rates in Poland will be published - changes are not expected. Lower than expected December inflation (2% yearly) causes the scenario of continuing the accommodative monetary policy by the MPC to be more likely. Therefore, the chances for rate hikes before the end of 2018 are limited.

The statement after the meeting will be published at 4.00 p.m. At the same time, the press conference will also start with Adam Glapiński, the President of the MPC and President of the National Bank of Poland. If the message and/or the conference has a dovish message (and there is no reason to tighten monetary policy in the near term), the zloty may continue to decline in relation to the main currencies.


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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.

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