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Dollar appreciates and the market is not surprised with it (Daily analysis 19.02.2020)

19 Feb 2020 14:10|Bartosz Grejner

Inflation in the UK is slightly above expectations, which can support the pound. The EUR/USD exchange rate is below 1.08 and has been at its lowest level since April 2017. The zloty is relatively stable: the EUR/PLN is at 4.27. Greater changes can be expected on Friday.

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

  • 8:00 p.m.: Publication of minutes from the last FOMC meeting, the Federal Open Market Committee.

Positive sentiment protects the zloty from dollar's strength

Trading on the first phase of the day was marked by a strong dollar. The Bloomberg dollar index (which also includes emerging currencies) rose to just above 1211 points around midday, the highest level since the second week of October. At the same time, the EUR/USD pair fell again below 1.08, and it was traded at the lower limit since April 2017 (about 1.0785).

The strong dollar exerts supply pressure on the currencies of emerging countries, although the strength of the negative impact is limited by positive sentiment in the broader market. The main market indexes in Europe are increasing today and are still close to historic highs. On the one hand, market participants hope for a short-term negative coronavirus effect and a relatively quick economic recovery. On the other hand, the Chinese government and central bank are supporting the financial markets by providing more liquidity.

Economy supports the pound, but negotiations with the EU will be more important

Till the midday, there was also no relevant macroeconomic data and information on the virus that could change the sentiment in the market. Instead, the Office of National Statistics (ONS) published January data on consumer inflation (CPI) in the UK. Excluding energy and food prices, the inflation was 1.6% per year, 0.1 percentage point above expectations. This slightly reduces the chances of interest rates being cut later in the year and may prevent the pound from further declines.

The most important event for the British currency this year will probably be the negotiation of a new UK trade agreement with the EU. Reports on this matter may have the strongest impact on pound fluctuations.

Today's slightly better-than-expected inflation reading for the UK slightly reduces the chances of the GBP/PLN exchange rate returning to below 5.00, especially with the globally strong dollar now. The zloty basket was stable on Wednesday. The EUR/PLN exchange rate remains nearly 4.27 PLN.

Increase in wages surprises. Employment rate fails to meet expectations

Today, the Polish Central Statistical Office (GUS) published data from the Polish enterprise sector for January, which had a mixed tone. Average wages increased by 7.1% year-on-year, i.e. by 0.1 percentage point above expectations, while employment rose by 0.7%, i.e. by 0.6 percentage point below expectations. However, these data had a limited impact on the zloty. Later in the day, minutes from the last FOMC meeting will be published, although they are unlikely to come as a surprise and ultimately will not have a significant impact on the market. Stronger fluctuations can be expected on Friday when the IHS Markit will publish preliminary data of PMI indexes of the industry and services sector for the eurozone.

19 Feb 2020 14:10|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:

18 Feb 2020 16:31

The EUR/USD pair at the lowest level since 2017 (Afternoon analysis 18.02.2020)

18 Feb 2020 13:37

Weak data from Germany, the dollar appreciates strongly (Daily analysis 18.02.2020)

17 Feb 2020 14:16

Calm beginning of the week, but the Bundesbank provides warning signs (Daily analysis 17.02.2020)

14 Feb 2020 17:30

Surprises in important data regarding USA economy (Afternoon analysis 14.02.2020)

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