Afternoon analysis 28.09.2017

After yesterday's significant dollar appreciation, the US currency is incurring slight losses, although better than expected final GDP growth data may support its value. The zloty has pared some of yesterday's losses, taking advantage of the weaker dollar.

Dollar slightly weaker, GDP slightly better

In line with expectations and as suggested by readings from individual Lands, Destatis' preliminary September's data on consumer inflation (CPI) in Germany was confirmed. The consumer prices pace amounted at 1.8% YOY, as in the previous month. This also increases the probability that tomorrow's reading for the zone will also turn out to be as expected.

However, the confidence of German consumers deteriorated in September (according to the GfK index). Both the expectations of future income and the willingness to make purchases decreased. In turn, expectations of the (future) economic situation have increased. However, the overall level of this index has not fallen significantly: by only 0.1 pts and lowered to 10.8 pts. This is still close to last month's 16-year highs, which shows that consumer confidence in Europe's largest economy is still very good.

The effect of this data on the euro's quotation was limited. The market to a greater extent discounted yesterday's US tax reform programme, which, however, did not contain specific tax rates and probably be difficult to implement (the support of Democrats is required). Therefore, today we had a slight rebound on the eurodollar. The main currency pair quotations (EUR/USD) reached yesterday's lows in the morning (approx. 1.172) and in the following hours climbed to 1.18, reaching approx. 1.178 around 3 pm.

Data from the Bureau of Economic Analysis (BEA) on the economic growth pace in Q2 in the US gave support to the dollar. The third (final) reading turned out to be 0.1 percentage point better than expectations and the previous reading. The final data on the GDP growth pace was by 0.5 percentage points higher than preliminary estimates. The analogous increase beyond the preliminary estimates was observed in the previous quarter and was also similar in Q4 2016 (0.6 percentage points). After the publication, a slight dollar's appreciation could be seen, although currently, the main factors that determine the dollar's valuation are probably the perspective of tightening monetary policy and a tax reform in the USA.

Zloty pared some losses

Yesterday's significant depreciation of the zloty continued in the morning. However, aforementioned rebounds on the dollar also gave a moment of rest for the zloty, which was able to pare some of yesterday's losses. In the following hours, the dollar was slightly supported by better than expected GDP growth data, however, its derivation from the consensus was small so the dollar's strengthening just after the publication wasn’t significant and other factors (taxes, monetary policy) will influence its value to a greater extent.

In the next few hours, the zloty's trading will more like to be stabilised. There are no significant publications planned for this afternoon that would cause major fluctuations. On the other hand, the publication of data on inflation in Poland, the US and the eurozone is scheduled for tomorrow, therefore the market's situation may tend to stabilise until its publication.

Tomorrow's preview

At 10.30 a.m., the Office of National Statistics (ONS) will present Q2 data on the economic growth in the UK. This will be the final reading, therefore a probability of significant deviations from previously published values is relatively limited. Preliminary ONS data showed the Q2 growth pace was at 1.7% YOY and 0.3% compared to the previous quarter. The pound remains relatively strong mainly due to high inflation and the Bank of England's perspective for tightening monetary policy. However, its value can be subject to significant fluctuations due to uncertainties connected with the Brexit process or, to a certain extent, movements of the European Central Bank and the Federal Reserve.

Half an hour later, Eurostat will present September's preliminary data on consumer inflation (CPI) in the eurozone. In August, its level turned out to be 0.2 percentage points higher than market expectations and July's level, moreover, it increased 1.5% compared to the same month of the previous year. This trend could also be continued in September - now, the median of expectations points to a further increase to 1.6% on an annual basis, which would mean its highest level since March. In turn, the eurozone's core index (excluding energy, food, alcohol and tobacco prices) remained at 1.2% YOY in the last two months. However, the consensus points to maintaining this level in September and breaching it would mean the highest core inflation level in 4.5 years.

Moreover, September's data on consumer inflation in Poland will be also presented by the Polish Central Statistical Office (GUS). Inflation in Poland has been steadily increasing over the last two months, and it is expected that this trend will continue and the CPI index will increase from 1.8% to 2% compared to the analogous period of the previous year, which would even the levels of March and April this year. In recent days, we have observed a significant depreciation of the Polish currency, which was caused by, among others, the perspective of tightening monetary policy in the US and the eurozone and the recent constant dovish attitude of the Polish Monetary Policy Council, including its Chairman. A reading that is worse than market expectations could prolong the pressure put on the zloty.

Half an hour later, the Bureau of Economic Analysis (BEA) will present August's data on PCE inflation in the US. This type of inflation the Federal Reserve takes into account when making projections of changes in its levels, therefore this publication may cause an increase in the dollar prices volatility. Median of market expectations assumes it will increase to 1.5% YOY (by 0.1 percentage point) and remain its core index at the level of 1.4% (excluding energy and food prices). However, the final impact on the dollar could be relatively limited. The hawkish signal coming from the monetary committee of the Federal Reserve confirm their commitment to tightening monetary policy, despite mixed data such as, inflation in the recent months.