Daily analysis 28.04.2017

The EUR/USD has increased due to the eurozone’s baseline inflation, which was higher than estimated. The British GDP was worse than expected, but components of its growth appeared to be relatively favorable. The zloty is strengthening before the readings of both inflation from Poland and the American GDP.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

• 14.00: Inflation from Poland (estimates: 2.0% YOY).
• 14.30: Initial reading of the American GDP for the first quarter (estimates: positive 1.0% QoQ, seasonally equalized and annualized).

Higher inflation

The euro wore-off due to a dovish testimony from Mario Draghi, as well as to the lack of suggestions regarding the monetary tightening in the eurozone. However, the American data was worse than estimated yesterday. This, combined with decreasing chances for a quick implementation of fiscal changes in the USA, caused both the US bonds and the dollar to lose value. As a result, the EUR/USD remained basically unchanged. However, this situation has changed shortly before noon.

According to Eurostat, the eurozone’s inflation is currently at the level of 1.9% YOY, which is by 0.1 percentage points better than estimated. However, it was an increase of baseline inflation that has caused the EUR/USD growth. This index reached the level of 1.2% YOY, whereas the estimates were at the level of 1.0%. Moreover, this was the largest growth of baseline inflation in approximately four years.

This growth was partially caused by the Easter holiday effect (last year, Easter holiday fell in March and this year in April.) During the Easter holiday period, prices of plane tickets grow significantly and this tends to disturb the entire category. Therefore, baseline inflation for March went down to 0.7% YOY and currently this index increased up to 1.2% YOY. If we were to take out an average of these two results, we would receive 0.95%, which is not as impressive.

However, investors tend to react nervously and the fact that baseline inflation has reached its four-year maximum might have cause anxieties over the future inflation. This would cause pressure on the ECB to change its mild monetary policy. Even though this doesn’t seem likely for the time being, the market may use this matter and the EUR/USD could test the 1.10 level, especially if both the American data and inflation pressure in the USA are weak.

Data from UK

The above mentioned volatility eclipsed the readings from the United Kingdom. The British GDP growth was worse than estimated (positive 2.1% YOY vs 2.2% YOY). This may suggest that the economic growth has started decreasing due to the Brexit-related anxieties, which is negative for the pound.

However, it’s worth noting that particular readings from the Office for National Statistics (ONS) were not as negative. The industrial processing increased 2.8% YOY and 0.5% QoQ. Even though this index’s contribution to the British economy is only at the level of 10%, this goes to show that the Brits have been feeling quite comfortable, in spite of Brexit.

The business and finance services component was also relatively positive (2.7% YOY). This index’s contribution to the British GDP is at the level of 30%. Worse results were quoted in the index of public expenses, as well as in the building sector. Nevertheless, the market’s reaction to this data should be neutral for the pound.

Zloty remains strong and stable

The zloty has been basically resistant to the global signals. It’s reaction to both the American data and Mario Draghi’s press conference was minor. The Polish currency’s behavior before noon was also calm, despite an increased volatility caused by the eurozone’s inflation data. This is a positive signal for the zloty in the perspective of forthcoming days.

This afternoon, we will receive the initial inflation data from Poland for April. Taking into consideration the data from the eurozone, as well as from Germany, the market consensus could be exceeded (2.0%). However, this should have a minor impact on the zloty.

However, we can expect more fluctuations on the USD/PLN. This afternoon, we will receive the American GDP data for the first quarter. According to the GDPNow model, the GDP growth will only be at the level of 0.2% QoQ in annualized interpretation. Bloomberg estimates it to be at the level of 1.0%, but the gap between these estimates is relatively large. If the reading is near 0%, the USD/PLN may reach the range of 3.82-3.83.