Daily analysis 24.01.2018

The US Secretary of State's statement has deepened the dollar's depreciation. The pound receives support in the form of data from the British labour market. The zloty benefits from the global weakening of the dollar and the comments of the Polish Prime Minister. A new three-year minimum for the USD/PLN.

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

• PMI index for the US industrial sector (estimates: 55.2 pts; previously: 55.1 pts),
• PMI index for the US service sector (estimates: 54.5 points; previously: 53.7 points).

The dollar deeper in red

A weakening of the dollar was seen yesterday afternoon. Yesterday, EUR/USD quotations increased to almost 1.23 at closing time. This morning, there was another wave of dollar weakening, probably caused by what the US Treasury Secretary said during the briefing.

Steve Mnuchin, quoted by Bloomberg, pointed out that the weak dollar is good for US trade (it can cause export to be more competitive). As a result, the EUR/USD exchange rate set new, 3-year records at 10:00 a.m. and appreciated to approximately 1.236, while the price for one dollar fell below 110 yen for the first time since September last year.

The morning data had a limited impact on currency quotations. IHS Markit published January's preliminary data on PMI indexes for the industrial and service sectors for France, Germany and the eurozone. For all three economies, the activity in the service sector increased (Germany recorded its fastest growth rate in nearly 7 years). However, indexes for the industrial sector have decreased slightly. As a result, composite indexes for the eurozone and France increased (by 0.5 and 0.1 points, respectively), while a decrease was experienced in Germany (by 0.1 points).

Better data in the UK

November's wage data in the UK has surprised positively. The average wage of Brits rose at the fastest pace since January 2017 by 2.4% YOY at 0.1% above expectations. Higher than expected wage pressure may increase the probability of the Bank of England's earlier monetary tightening.

This publication added more arguments to the already strengthening pound. The GBP/USD reached new highs since the mid-2016 referendum, breaching 1.41 (pre-referendum was at 1.48), although a part of this increase is caused by the globally weak dollar. The pound appreciated significantly in relation to the euro - one pound cost 0.8750 EUR, i.e. the least since 8 December.

Stronger zloty

After the US Treasury Secretary's statement, a strengthening of the zloty basket was observed and proved dollar dependence (the weaker dollar translates into the stronger zloty recently). The Polish Prime Minister may have helped the zloty in the morning. Mateusz Morawiecki, in an interview for Bloomberg in Davos, said that a stronger zloty does not harm the Polish economy, and that he would only be more worried if it was growing rapidly.

As a result, one dollar cost below 3.37 PLN in the morning, which is the least since mid-December 2014. The globally weaker euro and stronger zloty caused the EUR/PLN quotations below 4.16, the lowest in over two weeks. Pressure on the dollar can help in sustaining a high valuation of the zloty in relation to the main currencies in the short term.

The European Central Bank should be kept in mind. Tomorrow, ECB President Mario Draghi will hold a press conference. Given the recent concerns of some ECB members on the euro's exchange rate being too high, an accommodative transmission from the ECB could weaken the single currency. If the dollar and the significant drop in the EUR/USD pair is seen, the zloty may be under strong pressure in the context of recent as well as significant appreciation.