Daily analysis 11.12.2017

The US currency under pressure from weak wage data, which indicated continued subdued inflationary pressure. Despite the agreement reached with the EU last week, the British currency has been still under pressure from Brexit. Today, data on inflation in Poland, but its impact on the zloty will be rather limited.

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

• 2:00 p.m.: Consumer inflation (CPI) in Poland in November - second, more detailed reading (estimates: 2.5% YOY, 0.5% MOM).

Weaker pound and dollar

This week in the currency market has started with the weaker dollar and the pound. The US currency may probably be under somewhat pressure due to worse than expected data on wage growth that has been published in the labour market report on Friday. The average hourly wage in the US increased in November at 2.5% per year and 0.2% per year compared to October, although the market expectations indicated that they were by 0.2 and 0.1 percentage points respectively higher.

This has been reflected in still suppressed inflationary processes in the US economy. This may be an obstacle for the monetary committee of the Federal Reserve to maintain the previous path of the rate hikes in 2018. After approaching the 1.17 boundary during Friday's quotations, today the EUR/USD rate rose in the morning to around 1.18 level, which was observed on Thursday.

On the other hand, the British currency has clearly been depreciating in relation to the main currencies, despite an agreement between the UK Government and the EU negotiators on the Brexit bill and borders. This opened the way for trade talks between the parties, although at the same time it also showed the relatively weakened position of Theresa May, UK Prime Minister. The perspective of "hard" Brexit may have been dismissed, but the current difficulties in this process can prolong the recent significant fluctuation on the pound.

This week, the British currency's quotations may be under even bigger nervousness due to the amount of information coming from the British economy this week. Tomorrow November's consumer inflation index (CPI) data will be published and on Wednesday the average wage data for the British people in October. Both data may give hints on the probability of a further interest rate increase. Readings below 3% and 2.5% on an annual basis respectively can contribute to the pound's weakening.

Next day, on Thursday, the Bank of England's decision on interest rates and the bond-buying program will be realised. Although changes in those two aforementioned issues are not expected to occur, main attention will be drawn to the monetary members' expectations on future interest rates. If the Bank of England's statement continues to be relatively dovish (which seems to be the most probable at present), combined with poor inflation and wage readings, the pound may be subject to significant supply pressure.

Stable zloty

The Polish currency quotations were relatively stable in the morning and the exchange rates in relation to the dollar, the euro, the franc or the pound were similar to those observed on Friday. In maintaining relatively good valuation in relation to the main currencies helped factors that recently have been favoured the zloty. The market sentiment was positive - indexes of the main European stock markets mostly gained, while the dollar and yields on the US Treasury were losing somewhat.

Despite the fact that the calendar of scheduled event is relatively empty today, the Polish Central Statistical Office (GUS) will present data on consumer inflation (CPI) in November. This will be the second reading - preliminary GUS estimates showed that prices in the Polish economy increased on average by 2.5% in comparison to last year's November.

Second reading also means that a more detailed inflation data divided by categories will be published. It may give suggestions as to the inflation trend in the economy - if November's increase was mainly due to rising food and energy prices (due to a significant increase in oil prices), this data should be neutral for the zloty.

However, if the price increase in November was also due to higher prices in other categories, which could indicate a higher core inflation in the economy, the zloty might have been appreciating. This scenario seems to be less probable, therefore the zloty's quotations in the following hours will be subject to external factors and will consolidate around current levels.