The US labour market supports the dollar - another ADP reading above expectations. Data from the eurozone with mixed tone and limited impact on the euro. Today's FOMC statement and Jerome Powell conference will be important for both currencies. Today, fluctuations of the zloty may be limited primarily to the USD/PLN pair and to a lesser extent to the GBP/PLN pair.
EUR/USD slightly above 1.14
Today, the mixed data from the eurozone came to the market. On the one hand, GfK's German consumer climate index rose above expectations to its highest level in nine months (10.8 points), and France's GDP growth pace in the Q4 was in line with consensus (0.3% quarter-on-quarter).
On the other hand, French consumer spending fell by 1.5% on a monthly basis (1.2 percentage points above expectations), and the aggregate sentiment index of consumers and entrepreneurs in the eurozone fell to its lowest level since September 2016. Additionally, government forecasts assume that Germany will grow at only 1.0% throughout 2019. Published CPI data in Germany in January was also not particularly impressive. The CPI is still at its lowest level since February 2018, i.e. 1.4% per year.
As a contrast, data from the US economy once again surprises positively. According to the ADP report on employment changes in the private non-farm sector, the number of payrolls increased by 213,000 in January, i.e. 23,000 more than expected. Employment growth in manufacturing alone amounted to 33,000 per month and was the highest in more than four years. This is another proof that the US labour market is in a very good shape, which can be seen in the data for December. This can be confirmed on Friday when the US Department of Labor will publish an official report on the labour market.
The dollar appreciated in response to the good ADP reading, while there were no strong positive stimuli from the eurozone economy. As a result, the EUR/USD quotations fell from around 1.1440 to just below 1.1410 just before the beginning of the New York trading session. Over several days, however, these are still minor changes. The US currency is likely to be subject to greater volatility around the publication of the FOMC statement at 8:00 p.m. and the press conference of Jerome Powell. The partial shutdown of federal institutions, tensions in international trade, the global economic slowdown and Brexit do not give Powell many arguments to tighten up the message. This should not be expected, although it should be remembered that despite the Federal Reserve's milder approach to raising interest rates, the US economy is in a much better condition than the eurozone or the United Kingdom. Too little dovish statement made by Powell may also contribute to the dollar's appreciation and weakening of the euro.
Apart from GBP/PLN fluctuations caused by the Brexit, not much happens around the zloty basket. The GBP/PLN exchange rate fell yesterday to around 4.91 and remained slightly above this level today, moving within a relatively limited fluctuation range. The EUR/PLN pair is still below 4.30 level, and the changes in this pair will be limited. More volatility can be observed today in USD/PLN quotations in connection with events in the USA, although their final impact is difficult to predict, which is determined by the high uncertainty currently present on the market.
At 8:00 a.m. Destatis will publish retail sales data for Germany in December. Industrial production and GDP data from Europe's largest economy does not impress and suggests a faster than expected economic slowdown. A decline in retail sales by more than 0.6% per month (the median of market expectations) may strengthen the argument of Germany's economic downturn and potentially weaken the euro.
In the morning, there will also be a lot of data from the eurozone economies, including preliminary data on consumer inflation in France and Spain, GDP growth in Spain and Italy, data from the German labour market and, at 11:00 a.m., the eurozone's GDP growth pace. The latter's market consensus indicates an annual growth pace of 1.2% and 0.2% quarter-on-quarter. A lower than expected economic growth pace may significantly weaken the euro given its recent growths. However, the scale of change may also depend on the impact of today's statement and conference of the Chairman of the Fed. Their dovish tone may limit the range of the weakening of the euro in the case of slightly weaker than expected data from the eurozone.
The Polish Central Statistical Office (GUS) will publish data on Poland's GDP growth pace in 2018. The median of market expectations indicates annual growth of 5.0%. Although it is not expected to deviate from the consensus, a slightly higher than expected GDP growth may support the zloty.