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Daily analysis 22.12.2017

22 Dec 2017 12:54|Bartosz Grejner

Better than expected GDP data for Q3 in the UK, although the current account deficit date failed to meet expectations. The market is waiting for inflation data from the US and a stable dollar. November's unemployment rate in Poland reached its lowest level since December 1990.

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.: US PCE inflation for November (estimate: 1.5% YOY),
  • 2:30 p.m.: Durable goods orders in the US in November (estimates: 2% MOM, core index 0.5%),
  • 4:00 p.m.: the University of Michigan’s consumer climate index (estimate: 97.1 pts).

Upward revision of UK GDP

The third and final reading of the UK GDP growth pace in Q3 surprised positively. First, economic growth in 2016 was revised upward by 0.1 percent to 1.9% (yearly) due to better estimates for the second half of the year. Secondly, the preliminary estimates (first and second reading) indicated a GDP pace in Q3 at 1.5%, the lowest in 4 years, which increased to 1.7% today. The Office for National Statistics (ONS) indicates that one of the reasons for this is the upwardly revised economic growth rates for the period of October to December 2016.

Today, ONS published current account data in Q3, which, in contrast turned out to be worse than expected. The deficit of 22.8 billion GBP was 1.6 billion higher than the market consensus. In addition, the data for Q2 was revised and the deficit was increased by 2.6 billion (from 25.8 billion). Worse than expected current account data may slightly reduce the positive impact of GDP data on British currency quotations. Although, after the ONS publication the pound became stronger than the dollar, the euro and the zloty. These changes were limited until midday.

Dollar with no major changes

US currency quotations were stable until Friday afternoon. The main currency pair (EUR/USD) was moving in a very narrow fluctuation range today. Since the beginning of the European market trading session, the exchange rates have been between 1.184 and 1.186. Moreover, the dollar index (DXY), measuring its strength in relation to the six main currencies, was also at the level of 93 points and experiencing only minimal fluctuations.

This relative peace in quotations may be somewhat disturbed by the forthcoming publication of November’s PCE inflation data (at 2:30 pm). The median market expectations for reading without the influence of energy and food prices (core) is expected to amount to 1.5% on an annual basis (in September and October it amounted to 1.4%).

It seems that exceeding this level by even 0.1% may cause significant movements on the dollar especially when taking into account its currently weak condition. At the same time, data on orders for durable goods will be published and an hour and a half hour later, the second reading of the consumer climate index by the University of Michigan will be released. However, market attention will more likely be focused on inflation data, and the impact of these two publications (in the case of them being close to consensus) on US dollar quotations should be limited.

Unemployment in Poland lower than expected

According to data published by the Polish Central Statistical Office (GUS) today, the Polish unemployment rate surprised positively once again. In November, it fell to 6.5%, which is 0.1% below market expectations. This is also the lowest level since December 1990. Although it is not the most important of all measurements of the assessment of the Polish labour market, its gradually decreasing level combined with the gradually increasing employment rate and average wage growth at a high pace, which confirms the positive tendencies.

However, the Polish currency started the day in a slightly better condition even before the GUS publication (its impact is rather limited). The EUR/PLN quotations dropped to the lower limit of the last 6 months in the morning (1 EUR = 4.19 PLN.) Although at 12:30 pm, the price rose to around 4.196. The slightly stronger zloty was also caused by the fall of the CHF/PLN exchange rate near the 3.57 boundary, close to the lowest rate since mid-January 2015.

Later in the day, a strengthening of the pound in relation to the zloty was observed, resulting in a better than expected final reading of the GDP growth pace in Great Britain. In the following hours, the data on PCE inflation in the US may also be significant for the Polish currency. If PCE's core inflation exceeded the consensus in the market, the dollar could significantly increase in value. In this type of scenario, a strong increase may be recorded in the USD/PLN pair. The price for 1 USD may increase by as much as 3-4 points, bringing it close to 3.57-3.58 PLN. The quickly appreciating dollar could also weaken the whole zloty basket, especially the EUR/PLN pair, to return above 4.20.


22 Dec 2017 12:54|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.

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