Afternoon analysis 20.03.2017

Brexit will be initiated on the 29th of March. The zloty’s condition remains positive, but there is a risk of its depreciation. Due to a limited calendar of macroeconomic data, the market may focus on political events.

Pound goes down

The British government’s spokesmen, James Slack, informed that Brexit will be initiated on March 29th. After that day, the EU countries will be obligated to settle the negotiation instructions. Slack emphasized that the British government would like to start the negotiations as soon as possible.

Last week, the British parliament agreed on activating Brexit process in the last week of March. Therefore, this information shouldn’t be surprising. However, the GBP/USD was pushed from approximately 1.24 to 1.237. This also might have been caused by a small amount of economic events today.

The latter factor caused the EUR/USD to reach the area of 1.075 and the USD/JPY to reach the level of approximately 112.7. This caused the dollar’s index to remain near the level of 100 points.

This week’s macroeconomic calendar for the American economy is slightly limited. Therefore, the fluctuations may be relatively smaller. The market may focus on political information from the American administration.

On Thursday, we will know the data regarding weekly jobless claims in the USA. On Friday, we will receive the data regarding orders for durable goods, as well as PMI for both industry and sector. The latter appeared to be disappointing previously.

Zloty is stable

The zloty’s quotation have been relatively stable today. However, this has mainly been caused by a positive sentiment towards the emerging market currencies. The PLN/HUF has basically remained unchanged compared to its level from Friday (72).

However, we need to keep in mind that there is a relatively large risk of the zloty’s wear-off against the dollar. Today, another MPC member, Jerzy Kropiwnicki, said that he doesn’t expect inflation goal to be exceeded in the next twelve months. This was another dovish comment from the MPC, next to last week’s testimony from Adam Glapiński. Moreover, Friday brought negative data regarding the Polish industrial production and the retail sales.

Tomorrow’s events

At 10.30, the British Office for National Statistics (ONS) will publish the data regarding both the CPI and PPI for February. The CPI has been gradually increasing since November 2015. Moreover, the past few months have brought its more rapid growth, due to an increase in the raw material prices.

The CPI increased 1.6% YoY and 1.8% YoY in December and in January, respectively. Currently, the market consensus is at the level of 2.1% YoY. However, the baseline index has been stable, at the level of 1.6% YoY.

The input PPI increased 20.5% in January. This was mainly caused by the globally weaker pound. Currently, the market consensus assumes a 20% YoY growth.

If inflation is consistent with the consensus or better, this would strengthen the pound. At the previous Bank of England meeting, Kristin Forbes voted in favor of rate hikes, which has been interpreted as a relatively hawkish signal. Moreover, this was the first time in one year when there was a vote in favor of increasing interest rates in the United Kingdom.