Daily analysis 13.12.2017

Positive data from the eurozone, but afternoon reports from the United States are likely to set the sentiment. The zloty has been very sensitive to even moderately negative information from abroad. The EUR/PLN pair is between the 4.21 and 4.22 boundary before data on inflation in the US and the Fed meeting.

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

• 2:30 p.m.: Consumer inflation (CPI) from the USA in November (estimates: 0.4% MOM and 2.2% YOY; excluding fuel and food prices 0.2% MOM and 1.8% YOY),
• 8:00: The Federal Reserve's decision on interest rate (estimate: increase by 0.25 percentage points to 1.25 - 1.50 boundary). Publication of macroeconomic projections and median future interest rates by FOMC.
• 8:00 p.m.: Start of the press conference after December's FOMC meeting.

Signals for dollar

Although today's reports may be significant for the dollar's valuation (Federal Reserve meeting, CPI inflation for November), it is worth remembering yesterday afternoon’s events in which the US currency strengthened significantly and a noticeable deterioration of sentiment in the emerging markets' currencies was observed.

After higher than expected US production inflation data (3.1% YOY vs 2.9% YOY), the decrease of the EUR/USD by around 50 pips (to 1.1720 level) was observed. It seems that production inflation wasn't the most important yesterday, but today's speculation on the possibility of a more hawkish statement from the Federal Reserve occurred to be crucial.

Part of some leading financial institutions started to speculate that in the future, the Fed may start suggesting 4 interest rate increases next year (September's estimates saw three upward moves by 0.25 percentage points each). Generally, it seems that it is unlikely that such suggestions would appear today.

This is mainly due to the fact that we still do not have a sufficient acceleration in inflation. Moreover, wages have been appreciated at a pace that is much slower than expected. The Fed has stressed many times that it does not know why we have been observing such a low inflationary pressure in recent quarters and if this is the result of transitional or more fundamental factors. Therefore, at this point, a relatively big change in median future interest rate expectations would be a surprise.

It is also worth noting that this is the last press conference from Janet Yellen after the Fed meeting. The end of the current Fed president's term containing some surprising movements is also unlikely, especially if the economic situation does not require it. Of course, slight GDP path modifications are possible (probably slightly upward), but it seems that if needed, more serious decisions will be taken under Jerome Powell’s term of office. Therefore, a more hawkish message than there was in September's FOMC seems to be rather unlikely.

At the end of Thursday's session, the pressure to strengthen the dollar decreased and nighttime Senate election results in Alabama resulted in the weakening of the dollar. This happened due to the fact that a representative of the Democrats won, which means that the Republicans' advantage in the upper house of Congress is currently minimal (51:49).

Yesterday's quotations also showed that although the sentiment towards emerging market currencies has been rather positive, the dollar's appreciation (based on an increase in yields of the US Treasury bonds) caused the depreciation of emerging market currencies to happen rather quickly. Many lost since yesterday (from 0.5 to 1.0% in relation to the dollar). The high sensitivity of EM currencies coupled with a slight increase in expectations for future interest rates in the US means that an increased risk of asset volatility in the coming months is possible.

EUR/USD before the FOMC meeting

Reports from the US should take over today's session. Contrary to the expectations of some market participants, the FOMC's statement shouldn’t be particularly hawkish and the perspective of future rate hikes won’t be raised.

Moreover, there are no signs that the appreciation of core CPI inflation in the US during the month of November (estimate: 1.8% YOY). The pressure on wage growth is limited and despite the prices of raw materials, the US pricing process seems to be suppressed.

To a certain point, today's data from the eurozone may prevent hypothetical falls on the EUR/USD. Industrial production, despite fears like weak data from Germany, grew faster than the consensus (3.7% YOY vs. 3.2% YOY). Positive trends are also still observed in the labour market where employment increased at a satisfying pace after Q3 (0.4% QOQ).

Generally, it seems that during the next few months, the dollar may actually benefit from the economic situation in the USA and global events. However, today's session is unlikely to be an improvement for the US currency because it is possible that signals from both the FOMC and inflation won’t suggest a more restrictive monetary policy than they did at September's meeting.

Zloty sensitive to global factors

Tuesday's relatively rapid appreciation of the dollar on the global market quickly translated into the entire quotations of the currency basket. The USD/PLN pair wasn’t the only rising pair at 3.60 but the EUR/PLN pair also moved to the 4.21 - 4.22 level. The decrease in the overall valuation of the zloty is well represented by its attitude to the forint. In comparison to yesterday's midday, the PLN/HUF pair fell by approx. 0.3%.

This afternoon will be important for the national currency, but due a lack of surprise regarding the global market (inflation in line with expectations, a neutral message from FOMC), a deepening of the PLN depreciation should not be observed and the euro could even return to the 4.20 - 4.21 boundary.

However, if the opposite scenario had begun to be met with a more hawkish stance from the Fed and an acceleration of inflationary processes in the USA, then the zloty would probably have been strongly depreciated and the entry of the EUR/PLN pair into the range 4.23 - 4.24 would not have been surprising. In this case, the dollar could even increase by 5 points in relation to the Polish currency.