Afternoon analysis 24.01.2018

The dollar is still incurring losses after the US Treasury Secretary's comments. It is in favour of other currencies, especially the pound, which was additionally supported by data from the British labour market. In turn, the Polish zloty was supported by the NBP President's suggestions on interest rates and Prime Minister Morawiecki's statements and the global weakness of the US currency.

Today's session is a continuation of recent trends. The dollar remained under strong pressure and looked for reasons to maintain the recently visible trend. However, today, the dollar issue was in the limelight of financial portals like the "Financial Times".

This was caused by Steven Mnuchin's comments, the US Treasury Secretary. At the Davos Economic Forum, Mnuchin said that a weaker dollar is beneficial for us because it is connected to trade and opportunity. In the long term, the strength of the dollar is a result of US economic strength and it is and will be the main reserve currency.

The market has followed the issue of a "good weaker dollar" and the previous speculation on the current administration being satisfied with the depreciated dollar. To some extent, it is a break from promoting the dollar as a strong currency. However, in daily terms, and with the observed trend, this was a strong argument for the EUR/USD to reach new highs of more than three years (above 1.2380 level).

The pound saw the US currency weakness as a great advantage. Among the 10 currencies of emerging countries (G10), it appreciated by 1.5% (the same as the euro). In addition, the GBP/USD has reached almost 1.42, starting to move closer and closer to the levels seen before the decision on Brexit.

Moreover, the sterling quotations appreciated due to better than expected labour market data. In November, wages increased by 0.1 percentage points above the 2.4% YOY consensus. In addition, there was a strong increase in employment between September and November. This was more than 100k, which reduced the fears that employers will not create more payrolls (the previous two readings indicated a decrease in the number of payrolls).

Zloty on an appreciation wave

Today, the zloty was on an appreciation wave due to both global and local reports. A weaker US currency was positive for Poland. In addition, Prime Minister Morawiecki, during an interview for Bloomberg, answering a question about the zloty, said that the strong and fast pace of zloty appreciation is not good, but a slow, gradual appreciation of the zloty is beneficial for the economy. Moreover, in the case of the competitiveness of Polish exports, Prime Minister Morawiecki stated that he is not concerned about the appreciation of PLN.

Comments from the President of the NBP, which were ignored in the morning, could be beneficial for the zloty. In an interview for PAP, the NBP President said that an increase in interest rates in 2019 was possible due to rapid wage growth. This does not translate into change in Professor Glapiński's dovish opinion, but in an environment of a weak dollar and the interview with Prime Minister Morawiecki, it may also improve the overall valuation of the zloty later on in the day.

In the afternoon, the EUR/PLN pair is quoted in the range of 4.15-4.16, which means that it is short by about 0.01 PLN in relation to the euro to be cheapest since August 2015, while the USD/PLN pair is approaching the 3.35 level and at the same time reached the new, more than three-year lows. Zloty appreciation is also visible in the PLN/HUF valuation, which is currently growing by 0.2%.

The ECB meeting is scheduled for tomorrow. The last EU monetary authorities’ comments were dovish. The central bank's statement will most likely suggest that the basic parameters of monetary policy will also be maintained unchanged in subsequent months. Theoretically, this should weaken the zloty and the euro and strengthen the dollar. However, a strong negative sentiment to USD may complicate the process.