Extremely weak data from the UK economy. GDP in the Islands grows at the slowest rate in six years. The EUR/USD pair falls below the 1.21 level. The dollar tests the highest levels against the zloty this year. The EUR/PLN pair remains close to the 4.23 boundary.
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.: GDP readings from the US economy for the Q1 of 2018 (estimates: 2.0%, annualised).
Weak data from Great Britain
In the morning trading, the most notable event was the GDP readings from the UK. In the Q1, the British economy grew by only 1.2% year-on-year, which was the weakest reading since mid-2012. Some economists expected even worse data, partly due to a rather harsh winter in the Islands, but none of the analysts surveyed by the Bloomberg agency expected the level of 1.2% year-on-year (1.3-1.8 range).
Looking at the individual components, the situation does not look so good. Only manufacturing production is growing at a relatively good pace (2.5% YOY). Services, on the other hand, increased only by 1.2% year on year, while agriculture and the construction sector decreased in the Q1 by 1.3% year on year and by 3.3% year on year, respectively.
The data would not have caused so much emotion (first estimate, weather issues), but an important meeting of the Bank of England is planned for 10th May. Just two weeks ago, the increase in interest rates was practically determined. In the last few days, these chances have clearly decreased (to 50-60%) due to weaker economic data and the statements of BoE President Marek Carney.
After today's publication, the probability of rate hikes in two weeks is only 25%, and the market does not value a full monetary tightening by 25 points until the end of 2018. Today, the pound loses around 0.7% to the dollar and it seems that if the Bank of England actually withdraws from the interest rate increase, the British currency may remain under pressure, especially in relation to the recently strong dollar.
Stronger dollar
In addition, it is also worth noting what is happening with the EUR/USD. The main currency pair is falling below 1.21. Yesterday's ECB meeting was not the direct cause of the depreciation of the euro, but despite Mario Draghi's relatively optimistic tone, investors probably realise that the euro area economy is on the downward path.
On the other hand, most readings in the United States were relatively good. The chances for rate hikes in subsequent quarters remain high, which means that the difference between the value of money in both currency areas may grow. This supports the dollar not only in relation to the euro but also, for example, to the zloty or other currencies of emerging countries. In the afternoon, GDP data from the US will be released as well. If it was relatively good (around 2.5% or more) EUR/USD could even test the 1.20%.
Weak zloty
The Polish currency remains under pressure. The risk of worse readings from the eurozone is growing, which may also have a negative impact on Polish macroeconomic indexes. In addition, the MPC remains quite dovish, and it is possible that with continued low inflation some of its members will even start suggesting interest rate cuts.
The zloty is also negatively affected by the strong dollar. If the US currency strengthens further and the situation in the eurozone continues to deteriorate, the USD/PLN may continue to grow significantly above the 3.50 limit. Currently, this scenario is not a core one, but its risk has significantly increased in the recent days. It is worth noting that the afternoon's GDP readings from the USA, which in case of a positive surprise may extend the good pass of the dollar also in the following hours.
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.
Extremely weak data from the UK economy. GDP in the Islands grows at the slowest rate in six years. The EUR/USD pair falls below the 1.21 level. The dollar tests the highest levels against the zloty this year. The EUR/PLN pair remains close to the 4.23 boundary.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
Weak data from Great Britain
In the morning trading, the most notable event was the GDP readings from the UK. In the Q1, the British economy grew by only 1.2% year-on-year, which was the weakest reading since mid-2012. Some economists expected even worse data, partly due to a rather harsh winter in the Islands, but none of the analysts surveyed by the Bloomberg agency expected the level of 1.2% year-on-year (1.3-1.8 range).
Looking at the individual components, the situation does not look so good. Only manufacturing production is growing at a relatively good pace (2.5% YOY). Services, on the other hand, increased only by 1.2% year on year, while agriculture and the construction sector decreased in the Q1 by 1.3% year on year and by 3.3% year on year, respectively.
The data would not have caused so much emotion (first estimate, weather issues), but an important meeting of the Bank of England is planned for 10th May. Just two weeks ago, the increase in interest rates was practically determined. In the last few days, these chances have clearly decreased (to 50-60%) due to weaker economic data and the statements of BoE President Marek Carney.
After today's publication, the probability of rate hikes in two weeks is only 25%, and the market does not value a full monetary tightening by 25 points until the end of 2018. Today, the pound loses around 0.7% to the dollar and it seems that if the Bank of England actually withdraws from the interest rate increase, the British currency may remain under pressure, especially in relation to the recently strong dollar.
Stronger dollar
In addition, it is also worth noting what is happening with the EUR/USD. The main currency pair is falling below 1.21. Yesterday's ECB meeting was not the direct cause of the depreciation of the euro, but despite Mario Draghi's relatively optimistic tone, investors probably realise that the euro area economy is on the downward path.
On the other hand, most readings in the United States were relatively good. The chances for rate hikes in subsequent quarters remain high, which means that the difference between the value of money in both currency areas may grow. This supports the dollar not only in relation to the euro but also, for example, to the zloty or other currencies of emerging countries. In the afternoon, GDP data from the US will be released as well. If it was relatively good (around 2.5% or more) EUR/USD could even test the 1.20%.
Weak zloty
The Polish currency remains under pressure. The risk of worse readings from the eurozone is growing, which may also have a negative impact on Polish macroeconomic indexes. In addition, the MPC remains quite dovish, and it is possible that with continued low inflation some of its members will even start suggesting interest rate cuts.
The zloty is also negatively affected by the strong dollar. If the US currency strengthens further and the situation in the eurozone continues to deteriorate, the USD/PLN may continue to grow significantly above the 3.50 limit. Currently, this scenario is not a core one, but its risk has significantly increased in the recent days. It is worth noting that the afternoon's GDP readings from the USA, which in case of a positive surprise may extend the good pass of the dollar also in the following hours.
See also:
Cryptocurrencies soon in your bank?
Zloty under pressure (Afternoon analysis 25.04.2018)
Risk aversion (Daily analysis 25.04.2018)
Only minor changes (Afternoon analysis 24.04.2018)
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