Daily analysis 08.01.2018

EUR/USD falling despite worse than expected data from the US and better data from the eurozone. Statements from Fed representatives. Euro grew about 0.01 PLN compared to morning trade. However, sentiment in emerging market currencies quotations remained good.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• No macro data that clearly influences analysed currency pairs.

Weak data from US, better data from the eurozone

Friday's macroeconomic readings from the US were below the line. Number of new payrolls in the US was lower than the consensus (148k vs. 190k) and wasn’t compensated by the positive result of any other data component (wages, unemployment, participants, number of worked hours), which means that the general message from the labour market failed to meet expectations.

December's ISM data from the US service sector was also worse than the consensus. The overall index fell from 57.4 to 55.9 points and was expected to appreciate slightly. New order components appeared to be particularly disappointing and dropped to 54.3 pts (62.8 points two months earlier). Moreover, this is the weakest reading of this subindex since August 2016 and the lowest value in 4 years. On Friday, GDP growth perspective in Q4’s GDPNow model was revised downward from 3.2% to 2.7%.

The dollar was not hampered by this. On Friday, we stressed that macro publications themselves would not be the most important, but the reaction to them would be. The share market continued to appreciate at the end of last week, and treasury bond yields increased (despite falling initially), which may indicate that investors believe single weaker readings to be temporary. However, it is possible that the dollar will return to a higher correlation with future interest rests in the US’s valuation, which may reduce its chaotic movements in recent weeks.

The eurozone's data appeared to be better than the consensus. German industry orders grew by 8.7% year-on-year (adjusted by the number of working data). This has been the third best reading in over 6 years. Retail sales also grew faster than the consensus. Its volume in the eurozone increased by 2.8% yearly. Although, it did not allow the EUR/USD pair in paring some losses.

Signals from Fed

The turn of 2017/2018 was only characterized by statements from a few Fed representatives. Since Friday, three messages from the Fed have been published. Patrick Harker, the President of the Federal Reserve Bank of Philadelphia, is more in favour of two increases in interest rates this year (less than the median estimate of the rest of the Committee). However, Harker has no voting rights on interest rate levels this year, therefore his opinion is unlikely to be relevant to the market.

In turn, in an interview for Reuters, John Williams maintained the perspective of three increases this year. During Saturday's speech, the San Francisco Fed representative said that the tightening of the monetary policy may be more or less aggressive if there is a need. Moreover, Williams has the right to vote this year.

Few references to the monetary policy were made during Loretta Mester's speech. Mainly, the speech was devoted to monetary policy principles (focusing on the overall price level rather than evolution or nominal GDP target only) as an alternative to the current inflationary objective. Highlighting the current labour market strength, economic growth and reaching target inflation may indicate that Mester’s relatively hawkish views have not changed. Cleveland’s FOMC representative also has the right to vote this year.

Slightly weaker zloty

The strengthening of the US currency caused sentiment deterioration on the zloty. The EUR/PLN pair moved to the scope form 4.15-4.16 to 4.16-4.17. The franc's valuation also rose and the dollar tested the 3.47 PLN boundary (3.45 PLN during Friday’s closing). However, the situation on emerging market currencies remains relatively stable and the zloty's quotations are the weakest on the EM FX (the forint and the Czech crown gained in relation to the Polish currency).

A slightly worse condition of the zloty may be caused by the MPC meeting, which is scheduled for Wednesday. The recent return of inflation to the 2.0% year-on-year level may give more arguments for the dovish part of the Council to maintain a neutral monetary policy position. In turn, hawkish voices may be weaker, which in turn could hamper the zloty. Moreover, without clear sentiment deterioration in emerging market currencies or a bigger depreciation on the US market, the zloty should not incur any losses.