Afternoon analysis 18.04.2017

The British Prime Minister has called for early elections for the 8th of June. This caused the pound to gain value. The dollar’s basket is at the lowest level since March 30th. The zloty condition has clearly improved.

Unexpected decision from Theresa May

Shortly after 12.00, the British Prime Minister, Theresa May, announced that she has called for an early election to be held on the 8th of June. Of course, it has to be approved by the House of Commons. After taking over the prime minister post in mid-2016, May claimed that she doesn’t see the necessity of holding elections before 2020. Today, however, she insisted that an early election is the only way to guarantee security and stability. Elections are to strengthen May’s position and improve the Brexit process.

Shortly before May’s testimony, the pound had been losing value. This was caused by a leakage of information regarding early elections. The GBP/USD went down from 1.26 to 1.252. However, subsequently the pair managed to increase to approximately 1.267. May’s announcement has caused the likelihood of the pound’s increased volatility to enlarge.

The dollar clearly lost due to the above information. The EUR/USD went from 1.064 up to 1.069. Moreover, the USD/JPY went below 1.09. This caused the dollar’s index to go below 100 points, which is its lowest level since March 30th.

The dollar was also not supported by the mixed data from the American real estates market. According to the Census Bureau, the amount of building permits decreased by 3.6% MoM in March (estimates: 2.8%). Moreover, the amount of initiated investments decreased by 6.8% MoM (estimates: negative 3%).

Zloty’s positive streak continues

The zloty was in a positive condition before May’s press conference. However, it strengthened even more afterwards. The zloty gained against the franc, euro and dollar. However, the GBP/PLN increased from approximately 4.98 to approximately 5.02.

The zloty remains strong against the forint. The PLN/HUF has been near its one-year maximum. The zloty has also been supported by the positive sentiment towards the emerging market currencies, as well as by the weaker dollar. The data regarding Poland’s industrial production and the retail sales on Thursday may appear crucial for the evaluation of the zloty.

Tomorrow’s events

At 11.00, the Eurostat will publish the CPI for March. The initial reading from the 31st of March appeared to be clearly worse than the market consensus (1.5% YOY vs 1.8% YOY). Furthermore, baseline inflation appeared to be worse than expected. Moreover, its reading at the level of 0.7% YOY was the worst since April 2016.

This data had a negative impact on the euro, because they have reduced the likelihood on a sooner monetary tightening by the European Central Bank. Currently, the market consensus is at a similar level as the initial readings were.

At 14.00, the Polish Central Statistical Office will present the data regarding salaries in the company sector for March. This index has been increasing over the past months and the market consensus assumes its further growth (4.3% YOY). Moreover, the employment rate for March is expected to grow as well (4.6% YOY).

This would be a positive signal for the Polish labor market, which has been struggling with the problem of a relatively low employment rate for years. Even though Poland’s unemployment rate is among the lowest in the European Union, the employment rate is one of the worst. Nevertheless, this data may have a limited impact on the zloty. The Polish currency remains susceptible to the sentiment towards the emerging market currencies. Moreover, the data that may appear more significant for the zloty will appear on Thursday (the industrial production and the retail sales).