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Afternoon analysis 23.10.2017

23 Oct 2017 15:09|Bartosz Grejner

Good market sentiment improved the zloty's valuation. The US currency is also appreciating due to a higher probability of introducing tax system reforms in the US. The most important event this week, ECB's meeting of the monetary committee, could weaken the euro.

Zloty slightly stronger

The Polish currency was in a relatively good condition today. To Friday's statements of the MPC members, which suggested the possibility of rate hikes and could support the zloty, today has joined better sentiment in the market, which also had a positive impact on the zloty valuation. The main European markets' indexes are once again close to historical records.

As a result, the price of one Swiss franc fell again close to the 3.64 PLN boundary, similarly to Friday. These are the lowest levels observed since the second half of January 2015, when the Swiss central bank released the peg to the euro. Today, the value of one euro expressed in PLN (4.223 PLN) has also fallen close to the lower boundary of last week's quotations. Exceeding the level of 4.22 by the EUR/PLN pair would mean the lowest price for the single area currency since 21st August this year.

The fact that the zloty was stronger today, not only due to external factors, was its growth in value in relation to the regional forint. The PLN/HUF quotations rose to nearly 73, close to the highest level since mid-July. Today, the zloty did not appreciate in relation to the slightly stronger dollar and pound.

The US currency gradually appreciated since the beginning of the European session. It was supported by the US Senate's vote on a law to increase the budget by 1.5 trillion USD. This may help President Donald Trump to open the path to fiscal reform and fiscal stimulus. The EUR/USD quotations fell to approx. 1.173, close to the lowest level in two weeks.

The positive sentiment on the market that supports the zloty may deteriorate due to events in Catalonia. In the case of deeper depreciation of the main indexes and increase in risk aversion, the Polish currency could lose value as well, together with other currencies of emerging countries.

However, the most important event this week, also for the zloty, will be Thursday's statement and press conference after the monetary committee meeting of the European Central Bank. A reduction in asset purchase program has been speculated to be announced by the ECB, which is currently 60 billion EUR per month. Lowering it by less than half could exert negative pressure on the euro, which has also supported the positive condition of the zloty.

Tomorrow's preview

The publication (IHS Markit) of October's preliminary data on the PMI indexes is planned for tomorrow. At 9.00 a.m., PMI index data for the industrial and service sectors for France will be published. Half an hour later similar readings for Germany will be released, and at 10.00 a.m., for the eurozone as a whole. The median of market expectations indicates slight weakening among all readings in the range of 0.1-0.5 points.

However, these levels would still be relatively high, especially in the case of industrial production for which these would be slightly more than 6-year highs levels. The relatively good condition of the eurozone's economies in the recent months has reduced the risk of significantly lower-than-expected readings, therefore the impact on the euro may not be notable. Market attention may be shifted towards the still unsolved issue of the Catalan region and the upcoming elections in Italy.

At the same time, i.e. 10.00 a.m., the Polish Central Statistical Office (GUS) will present September's data on the unemployment rate. Probably the first time since February 1992 it will fall below 7%. The GUS publication should not have a major impact on the zloty, but this index may confirm positive processes that take place in the Polish labour market, which good condition supports the Polish currency as well.


23 Oct 2017 15:09|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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