Afternoon analysis 13.09.2017

The zloty loses on value - today's data on current account below expectations. The EUR/USD pair close to 1.20, but the range of changes was small - investors are waiting for Thursday's inflation data.

Polish currency under pressure

The National Bank of Poland (NBP) has published July's data on current account in Poland, which has failed to meet market expectations. The deficit of 878 million EUR was near to June's level of 932 million, which was the largest in 9 months. On the other hand, a faster increase in imports (8.4%) rather than exports (6.6%) caused the deficit in July's trade account to be double last year (547mln vs. 272mln).

This data was in line with today's trend of the zloty's depreciation. Starting in the early morning hours, the zloty lost value in relation to most currencies. In relation to the euro, the Polish currency was cheaper than the euro by almost 3gr compared to the morning trading - the EUR/PLN pair crossed the 4.28 level for the first time since August 24th.

The weaker condition of the zloty, also in relation to the Hungarian forint, could have been influenced by a series of unfavourable information, i.e. regarding comments from one of the MPC members about possible rate hike decreases, the European Commission's decision regarding courts in Poland or worse than expected core inflation reading.

In the meantime, the theoretically positive information about the Polish economy was not able to raise the zloty's valuation. Moody's rating agency has raised Poland's GDP growth forecast for 2018 by 0.4 percentage points to 3.5%, at the same time, decreasing the budget deficit forecast from 2.9% to 2.7% in the same year.

Taking into account, the fact that the chances of lowering interest rates in Poland are rather small and the negative impact of political factors is likely to be temporary, the zloty's valuation in relation to the main currencies will probably return to the levels before today's depreciation, including the EUR/PLN pair in approx. 4.25-4.26. Possible risk to the zloty's value may be tomorrow's US inflation data - if it turned out to be significantly better than expected, the dollar could indeed appreciate, which in turn, could cause further pressure on the Polish currency.

EUR/USD pair just below 1.20

During the trading day today, the main currency pairs, the EUR/USD pair, moved in a relatively narrow range of 1.196 - 1.199, just below the 1.20 boundary. Stopping of the dollar's appreciation, despite relatively good sentiment on the market, was probably due to tomorrow's report on consumer inflation in the US. Some market participants may be afraid that the pace of price growth may continue to be suppressed, which could depreciate the dollar.

Today, the Bureau of Labor Statistics (BLS) in the US published August's data on producer inflation (PPI). It turned out to be worse than expected by 0.1 percentage point, both in relation to the headline inflation index (2.4%) and to the core index (2%). It remains relatively high, close to the recent mid-year highs. However, today's BLS publication has had a very limited impact on the dollar. Therefore, investors will probably be focused on tomorrow's CPI data, which limits the chances of the significant dollar's fluctuations in the subsequent hours.

Tomorrow's review

At 9.30 the Swiss National Bank will release the decisions regarding the interest rate levels. They will probably remain unchanged. However, the SNB may revise the forecasts of growth for 2017 in accordance with a weaker GDP reading on growth pace in Q2 (0.3% annualised, which was at the lowest pace in almost 9 years). The dovish message from SNB can, therefore, cause downward pressure on the franc.

Three and a half hours later, the Bank of England (BoE) will publish a decision regarding the monetary policy after a two-day meeting of MPC. At the same time, a record of the meeting (so-called "minutes") will be released. The interest rate and bond-buying program will most likely remain unchanged.

For the last two days, there have been published mixed data from the British economy. On the other hand, the consumer inflation (2.9% YOY) was higher than expected (especially in the case of core inflation - excluding energy and food prices - by 2.7%), but on the other hand, the average earnings growth disappointed market expectations and remained on unchanged, 2.1% level on a yearly basis.

This may reduce the chances of a more hawkish message from the BoE. A higher level of interest rates could limit the further growth and also negatively affect the already declining, in real terms, wages of British people.

At 2.30 p.m., the Bureau of Labor Statistics (BLS) will present August's data on consumer inflation in the US. In June, the CPI (excluding the most volatile prices) dropped to 1.6% YOY, which was the lowest level for almost a year. In July, it increased by 0.1 percentage point, but the median of market expectations assume its decrease to 1.6% level.

Around the hour of publication, we can expect significant fluctuations in the dollar's value. A reading, similar or lower than consensus (1.6%) may reduce the chances of a relatively fast monetary tightening in the US. In this case, the Federal Reserve's statement after the next meeting may be relatively mild, which in turn, may negatively affect the dollar's valuation.