Daily analysis 12.09.2017

Improving global sentiment helps the dollar, but harms the franc. Clearly higher than expected inflation readings from the UK raise the GBP/USD pair to annual highs. The zloty lost value slightly in relation to the euro and the forint. The pound and the dollar have noticeably appreciated.

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.:Core inflation from Poland (estimates: -0.1% MOM and 0.8% YOY).

Stronger dollar and weaker franc

S&P 500 historical records at the US session closure combined with the lack of negative reports on the Korean Peninsula have caused a significant reshuffling in debt instruments and currency markets.

The yields on bonds maturing within 5-years rose from Friday's lows by 12 base points and reached 1.72%. The strong upward movement also occurred on the yields on bonds maturing in 2-years, which increased from 1.25% to 1.32%. As a result, the Federal Reserve's chances of rate hikes increase. Currently, the probability of the Fed's monetary tightening in December is 42%, and on Friday was 30%.

The positive global sentiment and decreasing geopolitical tension override the franc. Since the end of last week, the franc depreciated against the euro by 0.75% and the dollar by nearly 1.5%. A meeting of the Swiss National Bank (SNB) is scheduled on Thursday. The central bank's message may be quite dovish, and the economic forecast for 2017 is likely to be revised downward after the GDP rose by only 0.3% YOY last week. It was the weakest reading in less than 9 years. So the chances of the CHF to remain under seller pressures are high.

UK data helps the pound

For a few days, the pound got better and better in the broader market. Last week, we pointed out that foreign trade data was positive for the sterling. After revisions, it turned out that the trade deficit was much lower than expected. Moreover, a broad discussion on the transitional period between the formal exit from the European Union and the actual exit from the common market has been also positive for the GBP.

Today's CPI readings have been supported by a good sentiment on the British currency, although the interpretation of this data should be very cautious. August's consumer prices accelerated to 2.9% YOY (previously 2.6%: expected 2.8% YOY). An even greater difference in relation to the consensus was observed in the context of the core CPI reading (excluding fuel and food). This measure of price change increased to 2.7% YOY (estimates: 2.5%) and reached the highest levels in over 5 years.

According to data released by the ONS, the acceleration of inflation was caused by higher clothing and footwear prices, which rose by 4.6% compared to August 2016. Producer's prices rose more than expected (3.1% YOY), which appreciated to 3.4% YOY last month.

Today's readings are a serious problem for the Bank of England and Thursday's decision regarding interest rates. Growing inflationary pressure should suggest the need for a tightening monetary policy. On the other hand, relatively weak data coming from the British economy, combined with negative real wages growth, (inflation 2.9% YOY, wages 2.1% YOY for June) imply that the accommodative monetary policy may be needed to stimulate the economy.

A part of this puzzle may be explained tomorrow, as payroll data is scheduled on Wednesday. The economists' consensuses indicate that in July they rose by 2.3% YOY. The transcension of these estimates could cause a situation of Mark Carney's press conference being more hawkish and the pound remaining with the growing trend. On the other hand, with low wages growth rates, the chances of rate hikes are likely to be even bigger. Then it will be difficult for the pound to continue its rise, especially if there is little chance of monetary tightening by the Bank of England to be affirmed.

The zloty is weaker

After the increase in volatility caused by Eryk Lon's statement (a member of the Polish Monetary Policy Council), the zloty's valuation against the euro returned below 4.25 during yesterday's closure. Around midday, however, the zloty has once again been losing value and the EUR/PLN pair has been approaching the 4.26 level. Moreover, the Polish currency in relation to Hungary’s currency lost approx. 0.3% and the PLN/HUF pair tested the 72.00 level.

The global appreciation of the dollar and the pound causes a strong volatility in relation to the zloty. The GBP/PLN pair costs almost 10 gr higher than it was on Friday morning and the pair is being traded at 4.72 level. In turn, the USD/PLN pair rose by over 1% and is being traded near 3.56.

Good global sentiment should be positive for the PLN. However, yesterday's dovish' comments by Lon may still affect domestic currency trading. The rapid growth of yields on US Treasury bonds are not positive for the zloty, especially in the case of the low probability of raising rates hikes in Poland in the coming year. In general, the EUR/PLN exchange rate should not rise significantly, and global shifts will likely translate into movements of the Polish currency in relation to its American counterparts rather than the European one.