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Daily analysis 18.10.2017

18 Oct 2017 12:16|Bartosz Grejner

No major changes in the main currency pairs before midday. British wages increased more than expected in August, but growth is still well below inflation. The zloty awaits for macroeconomic data.

Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.

  • 2:00 p.m.: Producer inflation (PPI) in Poland (estimate: 3.1% YOY),
  • 2:00 p.m.: Retail sales in Poland (estimate: +7.9% YOY),
  • 3:15 p.m.: Industrial production in Poland (+5.2% YOY).

The absence of significant changes

On Wednesday morning, we observed consolidation in the currency market. The main currency pair, i.e. EUR/USD, remained close to yesterday's lows and moved within a narrow range of 1.173 - 1.177. Yesterday's data on industrial production in the US, which was in line with expectations (an increase of 0.3% on a monthly basis) was also unable to generate more significant movements on the dollar.

Today at 10.30 p.m., the Office for National Statistics (ONS) published data from the British labour market, increasing the pound's fluctuations. The unemployment rate was in line with expectations and remained at 42-year lows (4.3%) in August.

Likely the most important information from the report was average wage data, which increased in August by 2.2% compared to the same period of the previous year.

The aforementioned reading exceeded the market consensus by 0.1 percentage point, however, the growth was similar to that observed in July. This data could be positive for the pound, as it may result in higher inflationary pressure. However, for many months, inflation has definitely exceeded the wage growth - in August it was 0.7 percentage points higher and in September, by 0.8% (on a yearly basis). This means that price growth puts pressure on household spending as real wages are decreasing.

Maintaining this type of matter may have a negative effect on the economic growth of the UK (consumption decides most of it). This may limit the pound's appreciation potential, despite the fact that there has been a broad discussion among members of the Bank of England's Monetary Committee on the need for rate hikes.

Today, the pound has remained relatively stable after ONS data publication from the labour market sa it was losing in relation to the dollar. This was due to the general condition of the latter rather than the pound's weakness. The US currency also strengthened slightly in relation to the euro, while the euro remained at a similar level compared to the pound, which we observed during yesterday's closing (about 0.892).

The zloty still in a better condition

Yesterday, in the afternoon hours, the Polish currency returned some of the incomes earned in earlier hours. Today, however, we have once again observed its gentle strengthening. Today, the franc's quotations, in relation to the zloty, fell again below the 3.67 boundary. It approached yesterday's lows (approx. 3.667) at the same time as the lowest CHF/PLN exchange rate since mid-January 2015 (moment of releasing the peg to the euro by the Swiss Central Bank).

However, the next few hours may turn out to be important for the Polish zloty and its increased fluctuations can be observed. At 2.00 p.m., the Polish Central Statistical Office (GUS) will publish September's data on industrial production and retail sales. If it does not disappoint expectations (+5.2% and 7.9% YOY, respectively) the zloty could continue to follow the appreciation trend.

This is especially likely if the positive sentiment that we are currently observing in the market will be maintained. Main indexes of the European markets continue to appreciate, and the German DAX index, following the US indexes, continues to beat the historical value records for another day in a row. A greater appetite for more risky assets may be in favour of emerging countries' currencies, including the zloty.

However, it should be remembered that with such significant increases of indexes, it is possible that there will be a natural correction, which could worsen market sentiment. In such a scenario, the zloty could lose and as the last months have shown, it is particularly vulnerable to the worsening of the market sentiment.


18 Oct 2017 12:16|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:

17 Oct 2017 15:41

Afternoon analysis 17.10.2017

17 Oct 2017 12:12

Daily analysis 17.10.2017

16 Oct 2017 15:23

Afternoon analysis 16.10.2017

16 Oct 2017 11:52

Daily analysis 16.10.2017

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