Again weak data from the eurozone (Daily analysis 12.02.2020)

Industry in the single currency area again fails to meet expectations. Production fell the most in December for the year, highlighting the challenges that the eurozone will face this year. The zloty fluctuates within a limited range of volatility, but a deterioration in market sentiment may weaken it. The EUR/PLN exchange rate fluctuates around 4.25-4.26 in the morning.

Euro just above 1.09 USD boundary

Wednesday morning brought further weak data from the eurozone. According to Eurostat, industrial production dropped in December by 4.1% year-on-year, the largest decline in 12 months. After data from the largest economies for December, production was expected to fall, but the depth of the decline turned out to be much higher than the 2.5% expected. Particularly worrying is the 6.7% annual reduction of capital goods production.

The image of the eurozone industry is, as a result, more unclear than expected at the end of the year. The year 2020 was supposed to be a year of slight recovery for the eurozone and above all else for the industrial sector in recession. A slight recovery because no one expected strong growths due to the economic problems that the eurozone is facing. The coronavirus epidemic may make it more difficult to meet these expectations, especially as the new industrial year in the eurozone is starting at a much lower level than expected.

This further strengthens the disparity between the US and eurozone economies. Today's industrial production data match well with the trend observed in recent weeks. As a result, the dollar continues to be highly valued in relation to the euro. Although the EUR/USD quotations do not continue to fall and fluctuate slightly above 1.09, they are still levels just below the lower quotation limit since May 2017. The broader market consensus assumed a significantly weaker dollar compared to current levels, which also limits the growth potential for emerging currencies, including the zloty.

The zloty is almost flat, but much depends on the market sentiment

Today, the Polish currency recorded only limited changes despite another day of historical records on the European equity market. The potential appreciation of the zloty is being held back by the aforementioned stronger dollar, resulting from, among other things, better-than-expected condition of the US economy (and the worse eurozone), as well as increased uncertainty about global economic growth due to the coronavirus. Today's EUR/PLN quotations move within the range of approx. 4.25-4.26, which is slightly more narrow than yesterday. The USD/PLN exchange rate fluctuates around 3.90. The zloty, just like most emerging countries' currencies, is supported by continuing positive market sentiment. This results in an increased level of risk appetite. If sentiment begins to deteriorate, a gradual weakening of the entire zloty basket can be observed.