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Afternoon analysis 17.01.2018

17 Jan 2018 16:08|Bartosz Grejner

Polish labour market data higher than expected. The zloty may incur losses due to the dollar strengthening. Mixed data on industrial production in the USA.

Wage growth above expectations

According to the newest Polish Central Statistical Office (GUS) data, the average wage in the enterprise sector increased by 7.3% per year in Poland in December. Meanwhile, employment increased by 4.6%. In both cases, this data has clearly exceeded the consensus by 0.1 percentage points. In the case of wages, December's data indicated the fifth month in a row of more than 6% a year growth. Combining it with an almost decreasing unemployment rate (almost every month) and with gradually increasing employment, further improvement in the Polish labour market's condition may be observed.

Maintaining such a high wage growth pace may cause inflationary pressure. If a systematic increase in inflation is observed, especially its core index (excluding energy and food prices), it could provoke a broad discussion among the MPC members on the possibilities of rate hikes before the end of 2018.

Until inflation enters the path of sustained growth, the MPC's message will remain relatively accommodative. Therefore, today's data, although supporting positive trends observed in the labour market, had practically no impact on the exchange rate of the zloty. External factors continue to play a more significant role.

Mixed data from the US

At 3.00 p.m., The Federal Reserve published December's data on industrial production in the USA. It increased by 0.9% per month (3.6% year-on-year), 0.5% percentage points above expectations. Moreover, November's 0.2% increase was revised downward to a 0.1% fall. A reverse situation was seen in the case of the largest component, i.e. manufacturing production. Although production increased by 0.1%, it turned out to be below the market consensus of 0.3%. November's increase of 0.2% was increased to 0.3%.

Taking into account the unclear tone of the data, it is possible that it will have limited impact on dollar quotations. However, a gradual dollar appreciation and a decline in the main pair’s quotations (EUR/USD) are still observed. In both cases, the changes seem to be limited in their importance.

This evening, three members of the Federal Monetary Reserve Committee will give speeches, however, their impact on the main currency quotation should be limited. A statement from the European Central Bank (ECB) could be much more important in the context of the currency market. The message is more likely to be dovish, as the ECB may fear an excessively high euro exchange rate, which may hamper inflation from returning to the inflation target.

Changes in the Polish currency were limited today. Zloty quotations in relation to the main currencies were close to yesterday's level (it slightly lost to the stronger pound and dollar). However, a further rebound on the dollar may put pressure on the golden zloty.

Tomorrow's preview

At 2.30 p.m., the Department of Labour will publish the weekly report on initial jobless claims. Last week's data showed that the number of jobless claims rose unexpectedly to 261k (15k more than market consensus) and was the highest since the end of September. The data on insured unemployment was much better than expected, it fell to the lowest level in 44 years and amounted to 1.867 million people.

The median of market expectations indicates that the number of initial jobless claims will fall to 250k, while the number of insured unemployment will rise to 1.9 million. This data is rather secondary in the case of its influence on dollar quotations. Taking into account that currently a weakening of the euro and a rebound on the dollar are being observed, better than expected data from the Department of Labour may slightly strengthen the dollar's appreciation trend.

17 Jan 2018 16:08|Bartosz Grejner

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.

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