Afternoon analysis 27.12.2017

The zloty was much stronger in relation to the main currencies as only approximately one point is missing to pare all losses against the franc after the release of the peg to the euro in mid-January 2015. The dollar was weakest against the euro since the beginning of December as the EUR/USD was once again above 1.19.

Stronger zloty

At the beginning of today's trading session, a strengthening of the Polish currency could be observed. Although the zloty remained in a relatively good condition, today’s appreciation was mainly due to positive sentiment in relation to the region's currencies. The zloty’s value vs. the Hungarian forint was practically unchanged in relation to yesterday.

However, despite the good condition of the euro against other main currencies, the price per euro expressed in zloty fell to about 4.187 PLN today, which is the lowest level in half a year. On the other hand, the USD/PLN tested the 3.52 level and was at a level less than 0.01 PLN to reach the lowest level in 3 years. Global pressure on the Swiss currency also contributed to achieving the lowest CHF/PLN exchange rate since mid-January 2015 as the price per franc fell to about 3.557 PLN today. This is just slightly more than one point from the level of the day before the release of the peg to the euro by the Swiss Central Bank (SNB).

US currency supportive

The zloty is supported by the further-weakened dollar. However, its weaker level seems to be temporary, taking into account the maintenance of the yield on US Treasury bonds (yields of maturing in 2 years bonds close to near 8.5-year-highs) and the tax cuts from next year, which should stimulate GDP growth, inflation and interest rates.

Currently, macroeconomic data from the US economy indicates that inflation growth tendencies remain subdued, therefore the weakness of the dollar is observed. However, these may be the last weeks of the dollar’s weakness in relation to the euro (the EUR/USD pair rose to the highest level since the beginning of December, slightly above 1.19) or the zloty.

Since the beginning of the year, market participants may assess the value of the upcoming effects of fiscal stimulus to the dollar. The appreciating dollar may be a threat not only to the USD/PLN pair, but also to the entire zloty basket. In this scenario, it may cause the outflow of capital from emerging countries, which in the context of the accommodative monetary policy carried by the Polish Monetary Policy Council (no expected interest rate increases by the end of 2018), may further weaken the zloty.

Tomorrow's preview

At 2:30 p.m., the US Department of Labor will provide weekly data on initial jobless claims. Last week's report clearly failed to meet market expectations. The number of jobless claims submitted increased to 245k which is 20k more than the previous week and 14k more than the market consensus.

Moreover, it was also valued at its highest level in five weeks. The number of insured unemployed increased by 43k (by 32k more than the consensus) as well. Currently, median market expectations indicate a decrease in claims by 4k (to 241k) and the number of insured unemployed by 32k to 1.9 million.

At the same time, the Bureau of Economic Analysis (BEA) will publish data on the current balance account on trade in goods for November. October's deficit reached 68.3 billion USD, growing by 4.2 billion USD in comparison with the previous month and by 3.3 billion USD above the consensus, which is the highest since January. The market consensus assumes a minimal reduction of the deficit to 67.6 billion USD in November.

Trading in the market between the Christmas and the New Year is limited, liquidity is smaller and publications of relevant data are less frequent. In this scenario, if the Department of Labour and BEA data once again fail to meet market expectations, a further increase in supply pressure on the dollar could be observed.