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Calm Monday but volatility may increase (Afternoon analysis 18.02.2019)

18 Feb 2019 17:36|Bartosz Grejner

Minor changes in the currency market. The EUR/USD pair is in a limited range of fluctuations, which helps to stabilise the zloty. Later in the week, however, we can notice somewhat greater volatility when macro data from the eurozone and Poland are published.

EUR/USD stays slightly above 1.13

New week started very calmly on the currency market. On the one hand, it was the aftermath of a practically empty macroeconomic calendar, and on the other, it was due to a day off from trading on the US and Canadian markets. Decreased liquidity on Monday translated into limited ranges of fluctuations of major currency pairs.

The dollar was slightly weaker today due to worse than expected data from the US economy at the end of last week (industrial production, retail sales). Optimism in the market is increasing, which is related to the upcoming trade agreement between China and the US. It would allow the avoidance of additional duties from March 1st, and currently, it supports the euro rather more than the dollar. This is because, taking into account the additional tariffs, the largest economies in the eurozone could eventually lose more.

The EUR/USD exchange rate remained above the 1.13 boundary until the afternoon and slightly above Friday's closing level. Minor changes in the main currency pair quotations stabilised the zloty basket. However, in the context of the last two and a half weeks, the Polish currency has clearly depreciated. This drop in value was stopped with a slight weakening of the dollar. Better sentiment on the global market and lower risk aversion (e.g. equities, oil) also help the zloty. EUR/PLN remained close to 4.33 and USD/PLN about 4.83. Favourable factors may become secondary and the supply pressure on the zloty may slightly increase if the macroeconomic data from both the Polish economy and the eurozone (which we will learn this week), turn out to be below market expectations, raising further concerns about economic growth.

Tomorrow's preview

At 10:00 a.m., the Polish Central Statistical Office (GUS) will publish data on changes in average wages and employment in the enterprise sector in Poland. The zloty is currently weaker, especially since the beginning of February, which is mainly due to the faster than expected economic slowdown in the eurozone. Recent data from Poland, although not so bad, show that the slowdown may also affect the Polish economy to a slightly greater extent. Wage data will be important in this respect - the median of market expectations indicates annual growth of 6.9% in January. A reading clearly lower than consensus (below 6%) may weaken the zloty, as it would increase fears of a faster slowdown also in Poland.

The Office for National Statistics (ONS) will provide a report on data on changes in British wages in December at 10:30 a.m. Currently, reports on Brexit have the strongest impact on the pound. However, considering the pound's behaviour and its current valuation, the market expects an agreement in the form of a contract or an extension of the negotiation period. This, in turn, may cause macroeconomic data, especially those with the greatest impact on inflation and monetary policy, to have a slightly greater impact on the pound's quotations than only two months ago.

The market consensus points to a 3.5% year-on-year increase in wages (including bonuses). From July to November, we observed a gradual increase in the rate of wage growth in the UK, which may suggest greater pressure on inflation. On the other hand, data from the British economy for December concerning, among others, industrial production, GDP growth rate and international trade deficit turned out to be worse than expected, reflecting the situation of other major European economies. Therefore, if wage data do not deviate significantly from expectations (+/- 0.1 percentage points), their final impact on pound quotations should be limited.

18 Feb 2019 17:36|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.

See also:

18 Feb 2019 13:15

Not enough significant impulses (Daily analysis 18.02.2019)

15 Feb 2019 16:26

Strong fluctuation at the end of the week (Afternoon analysis 15.02.2019)

15 Feb 2019 11:51

Inflation in Poland the lowest since 2016 (Daily analysis 15.02.2019)

14 Feb 2019 15:33

Sudden dollar weakening (Afternoon analysis 14.02.2019)

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