Dollar with the highest exchange rate since a week (Afternoon analysis 17.01.2020)

Appreciating dollar weakens the zloty basket. The USD/PLN exchange rate rises to over 3.82, but in the context of the past weeks, it is not a level that raises concerns about the Polish currency. Next week will be an important indication of the condition of the eurozone economy in early 2020.

The USA is developing

This afternoon, a series of data from the USA was released. The number of housing starts initiated in December increased by 16.9% month-on-month, i.e. by 1.608 million (by 228 thousand above expectations), marking the strongest monthly growth in 13 years. Usually, this index does not attract strong attention but is one of the signals highlighting the very good condition of the US economy.

Shortly afterwards, data from industrial production came to the market, also for December. The drop by 0.3% month-on-month was minimally deeper than expected (by 0.1 percentage point), but the most significant manufacturing index recorded an increase by 0.2%, despite the expected drop by 0.1%. This is also a positive sign for the dollar. It was not suppressed by the University of Michigan consumer confidence index in January. Although it was slightly lower than expected and amounted to 99.1 points (0.2 points below expectations), these are still levels close to long-term highs.

The positive sentiment prevailing on the market today seemed to have little chance of turning around (before that, good macro data from China had been received). It has almost become a rule that the main stock exchange indexes in the USA have reached new highs after the start of trading on the New York Stock Exchange. The positive overtone of macro data from the US (yesterday's higher-than-expected sales and lower initial jobless claims) also had a positive impact on the dollar. The EUR/USD pair fell to its lowest level in a week, i.e. around 1.1086 in the afternoon. This is just at the bottom line of the exchange rate since the pre-Holiday period in the second half of December. A drop below about 1.08 could open the way for further strengthening of the dollar.

Better condition of the US currency is usually not a good omen for the zloty, and it was no different today. The zloty's basket was clearly weaker in relation to the main currencies, the EUR/PLN exchange rate was quoted in the afternoon at over 4.24 and the USD/PLN exchange rate at over 3.82. These are still relatively low levels if we look at the quotations from recent weeks. Although further strengthening of the dollar could increase the supply pressure on the zloty, chances for a strong appreciation of the dollar seem limited today. However, another week will be important for the dollar, the euro and also the zloty, when we will learn a set of important indexes from the eurozone economy, which will allow assessing the mood in which the year began in the common currency area.

Next week's preview

Next week will be relevant to the pound. Depending on how the data on the change in the average salary of the British people (Tuesday) and the PMI indexes for the construction, industry and services sectors (Friday) will develop, this may change the likelihood of the Bank of England cutting interest rates. The market currently values them at around 73%, but if the data turned out to be below expectations, the chances of a cut could increase significantly and the pound could be under increased supply pressure.

Next week is also important in terms of eurozone data. On Tuesday, ZEW's business sentiment indexes will be released. On Thursday, a press conference of the European Central Bank will take place (no changes here, but fluctuations around this event are usually strongly increased). On Friday, preliminary data of the PMI indexes will be available. This will be the first signal for the market on the condition in which the eurozone economy started the year. Small increases are expected in the case of industry, and this is what market participants will pay attention to. Increased grows could support the argument about recovery of the eurozone economy, which in turn could strengthen the euro a little and also positively affect the zloty's basket.