Afternoon analysis 14.11.2017

Positive data from the eurozone has been helping the single area currency. Mixed data from Poland, including, the GDP growth pace being above expectations but core inflation failed to meet expectations.

EUR/USD pair above 1.17

During today's session, a significant euro appreciation in relation to the main currencies, to the dollar, the pound or the yen, was observed and the euro gained even about 0.7%. The main currency pair, i.e. the EUR/USD pair, breached the 1.17 border before midday and climbed to the highest level since October 26th (approx. 1.175).

Today, we were dealing with several publications which, in the absence of positive data from the US, favoured the euro. The GDP growth pace of the largest European economy (Germany) in Q3 amounted to 2.8% YOY, 0.5 percentage points above expectations. Eurostat also confirmed the growth pace of the eurozone as a whole at 2.5%.

For the third month in a row the eurozone's industrial production increased in September by more than 3% YOY (3.3%). Moreover, November's ZEW Institute's index measuring the investors' confidence turned out to be better for the single currency area (30.9 pts. vs. consensus 29.3 pts).

Theoretically, positive set of data for the dollar was published at 2.30 p.m. by the Bureau of Labor Statistics (BLS). In October, the producer inflation (PPI) amounted to 2.8% in annual terms, although market expectations indicated a reading of 0.4 percentage points lower. This indicator, excluding energy and food prices, turned out to be better than expected (2.4% vs. 2.3%) in both cases, these are the new highs of more than 5 years.

However, this data around 3.00 p.m., did not significantly affect the US currency's quotations. The dollar index (DXY) continued to oscillate around 94.00 pts., the level before BLS publication. The calendar of scheduled events for the following hours is relatively empty, therefore, the probability of major fluctuations of main currency pairs from current levels is currently limited.

Weaker core inflation

The current data on GDP growth pace could help the zloty (4.7% YOY; 5.0% seasonally adjusted), however, the Polish currency did not strengthen significantly. Although the zloty in relation to the dollar appreciated by 0.6% and the EUR/USD exchange rate fell below 3.61, it was mainly due to a significant EUR/USD exchange rate increase. In relation to the Hungarian forint, the zloty was even slightly lost (0.1%) around 3.00 p.m.

The slightly weaker zloty condition in the second part of the day may have been a result of a worse than expected reading of core inflation (excluding energy and food prices) in October. In September, it increased to 1.0% compared to the same period last year, and in October it was expected to decrease to 0.9%. However, the National Bank of Poland (NBP) data turned out to be by 0.1 percentage points worse than expected.

This contributed to an increase in the EUR/PLN exchange rate to approx. 4.2440, the highest level since last Wednesday, although part of the movement was due to the globally stronger euro today. Taking into account slightly worse core inflation data (which may reduce the likelihood of monetary tightening), a further increase in EUR/USD could also imply a continuation of the EUR/PLN rate increase. However, the chances of reaching or exceeding 1.18 on the main currency pair are probably quite limited, therefore, the zloty's quotations are likely to stabilize in the range of the current levels (the EUR/PLN pair close to 4.24).

Tomorrow's preview

At 10:30 a.m., The Office for National Statistics (ONS) will present September's data on the average wage in Britain. In recent months, inflation (which reached 3% in September) has been well above wage growth, resulting in a fall in real wage levels. In July and August, the UK wage growth pace was 2.2% per year.

The median of market expectations assumes an increase of 2.1%. Deviations from this value could increase the pound's fluctuations level. In particular, a fall below this value would mean the lowest wage growth pace since May. However, it seems that issues connected to the negotiations on the Brexit bill with the European Union and internal problems of Theresa May (the UK's Prime Minister) will have the greatest impact on the pound's quotes in the coming month. Therefore, probably only a reading that deviates from the consensus by 0.2 percentage points or more may have a greater influence on the British currency quotations.

In turn, at 2.30 p.m., The Bureau of Labor Statistics (BLS) will publish October's consumer inflation (CPI) data in the US. Although PCE inflation data is relatively more important (it is used by the Federal Reserve for its projections), the core index of consumer inflation may show if there may be upward trends. Inflation excluding energy and food (core) inflation remained at 1.7% between May and September. This is also the consensus for October.

The Census Bureau will present October's retail sales data at the same time. In the previous month, retail sales excluding vehicles were surprisingly positive. The 1% MOM increase was the highest since January, and the consensus assumed growth in sales by 0.3%. If October's reading also exceeded the market consensus (0.2% MOM), combined with higher than expected core inflation (>1.7% YOY), the dollar could significantly appreciate.