Afternoon analysis 12.06.2017

Continuation of the pound’s sell-off – GBP/USD fell today below 1.27. EUR/USD only slightly above 1.12, however, price swings should be expected this week. The zloty remained stable despite worse sentiment on the market today.

Slightly worse market sentiment

The market sentiment was worse today on the European markets, probably as a result of the Friday evening sell-off of shares from the technological sector on the New York Stock Exchange. The higher uncertainty regarding the government of Theresa May also dominated the pound’s trading which contributed to further depreciation of its value.

The dollar remained under pressure today as well. The yen appreciated as a result of a risk-off sentiment – USD/JPY fell again below the 110 level. EUR/USD traded slightly above 1.12 which meant the dollar’s index (DXY) decreased around 0.2% and oscillated around 97 points.

Both the dollar and the pound could be susceptible to increased volatility in the coming days. The consumer price inflation for the British economy will be published tomorrow and for the US economy – on Wednesday. Also on Wednesday, the Federal Reserve will publish at 8 p.m. CET its decision regarding interest rates and the British central bank will do the same at 1.30 p.m. the following day. Taking into account the political factors which have been influencing the price movements of both currencies, a significant increase in volatility should be expected around the aforementioned events.

Zloty relatively stable

The declines seen today in the European indexes also factored into a slightly lower demand for the Polish currency which is usually quite susceptible to changes in the overall market sentiment. However, today’s influence on the zloty wasn’t substantial. The zloty lost around 0.1% to the euro and the Swiss franc, and 0.3% to the Hungarian forint. Its relation to the dollar oscillated around Friday’s settlement level (around 3.73). The global drop in the pound’s value today caused the GBP/PLN to fall even below the 4.73 level, deepening the recent lows and marking the lowest exchange rate seen since mid-October.

At 2 p.m. the Central Statistical Office (GUS) published a report regarding the consumer price inflation (CPI) in May. The average price increase by 1.9% was similar to the preliminary data from two weeks ago. A lower inflation in recent months is mostly due to lower oil prices – the prices of gasoline increased in May by 7.6% year-over-year.

The noteworthy fact from today’s report were the food prices – they grew in May by 3.9% YOY while in April the increase was only 3% YOY. The CPI data had a limited impact on the zloty, however, as the headline figure was in line with expectations.

Tomorrow’s preview

ZEW will publish, at 11.00 a.m., the June levels of economic sentiment in the euro area and Germany. Beginning with August 2016, the sentiment in the eurozone has gradually been improving – the index for May recorded the highest level since August 2015. A similar situation took place in the case of the biggest economy in Europe – Germany.

Economists assessed very preferably, in particular, the current conditions of the German economy in May – the subindex of the current conditions rose to the highest level in nearly six years. Nothing has happened in the euro area in the last month that could suggest a significant deterioration of sentiment – the median of market expectations points towards a further increase in June both in the euro area and in Germany. Yet another increase in the indexes’ values could support the euro, however, it probably won’t cause a strong gain in value.

The National Bank of Poland (NBP) will share at 2 p.m. a report regarding the core inflation in May and the current account. The former has been steadily rising since October and, since February has been positive. April’s increase by 0.9% was the highest since June 2014. However, the core inflation probably fell in May together with the general consumption inflation index (CPI).

The current account, on the other hand, after posting the biggest surplus ever in January (2.6 billion euro), hasn’t been able to meet expectations and posted a deficit in the two following months: 825 million and 738 million euros respectively. The aforementioned data, however, will most probably have limited impact on zloty.

The Polish currency has been reacting to the greatest extent to external factors rather than internal. Additionally, even a higher than expected core inflation reading in May wasn’t able to cause the Monetary Policy Committee to be more hawkish after the last meeting in June. On the other hand, the data could give insight into the expected path of inflation and whether there was a rise in the inflow of the EU’s funds, which could positively translate to a higher level of investments in the next few months.