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Afternoon analysis 11.12.2017

11 Dec 2017 15:07|Marcin Lipka

The EUR/USD close to the 1.18 boundary before the ECB and Fed meetings. The return of uncertainty about Brexit put the pound under pressure once again. Food prices rose by 6.5% YOY, but core inflation was in line with expectations. Positive foreign trade data. The EUR/PLN pair still close to the 4.20 boundary.

Weaker dollar. Pound under additional pressure

Although last week was generally favourable for the US currency, Friday's data from the US labour market (slower than expected wage growth) reversed the appreciation trend on the dollar. As a result, in the early afternoon, the EUR/USD remained close to the 1.1800 boundary.

The most important information for the dollar in the coming days will be the Fed meeting and November data on inflation (both events on Wednesday). Taking into account the changes in FOMC and the lack of pressure for a stronger acceleration of labour costs, it is difficult to expect a major change in the Fed approach to future interest rates. However, macroeconomic projections and references to increasingly likely fiscal changes may slightly increase fluctuations in the global market on Wednesday.

The issue of the divorce conditions, the first part of Brexit, have returned like a boomerang. Last week, the United Kingdom and the European Union seemed to have agreed on leaving conditions before the negotiations regarding future trading conditions.

However, quoted by the Bloomberg agency, David Davis, Minister for Brexit, yesterday said to the BBC that the agreement reached with the EU was "much more a statement of intent than was legally enforceable.” Today, Davis has tried to withdraw his comments from the weekend, but they have already provoked a reaction from the European Commission. The EC stated that the agreement was not legally binding, but was "a deal between gentlemen".

Therefore, investors may have the impression that divorce issues are not totally agreed upon within the Conservative Party as well as between London and Brussels. This reduces the chances of actually opening negotiations between parties on their future relations. This may also cause further pressure on the pound, even though the British economy has sent rather better than worse reports.

Stable zloty. Inflation without influence on zloty

Afternoon trading on the zloty remained relatively calm. The EUR/PLN stayed close to the 4.20 boundary. Zloty stabilisation has not been disrupted by November's inflation readings. It was in line with the preliminary GUS estimates (2.5% YOY and 0.5% MOM). The core inflation also slightly rose to 1.0% YOY, as the price increase was mainly driven by food prices.

Food and beverage prices rose by 6.0% YOY in November, the fastest pace in over 5 years (only food prices rose by 6.5% YOY). Fuels for private means of transport increased by 4.7% YOY (2.9% MOM). However, apart from that, no spectacular changes of other inflation components were visible, which can serve the neutral and the dovish members of the MPC to confirm their opinions on not needing a rate hike.

In the context of the whole economy, the next foreign trade surplus should be seen as positive. According to the Polish Central Statistical Office (GUS), in October it amounted to around 30 million EUR, and throughout the whole of this year 2.16 billion EUR. Given relatively strong consumer demand and the rebound in investment (currently small, but still), this increase in the trade goods surplus should be regarded as positive information. On the other hand, the following hours should not bring any major changes to the zloty, especially since the market is probably waiting for events from the next part of the week.


11 Dec 2017 15:07|Marcin Lipka

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 acknowledgement of the source is prohibited.

See also:

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