Gradual zloty's depreciation (Afternoon analysis 11.12.2018)

From loss to profit - good data supports the dollar, which starts to gain. The zloty is weaker and may continue to weaken gradually.

EUR/USD moves up from 1.14

Strong increases in the equity market had a limited impact on the currency market today. The main currency pair quotations (EUR/USD) fluctuated slightly, starting the day with a fall on the dollar, which pushed the exchange rate to the 1.14 boundary. Around midday, the dollar was gradually paring losses. Data on producer inflation (PPI), which exceeded market expectations by 0.2 percentage points, also helped.

The PPI index increased to its highest level since July this year. Although this is rather secondary data for the dollar and it fits in well with the slight weakening of the euro (issues of increasing France's deficit next year), which strengthened the US currency. Just before 4:00 p.m., the EUR/USD exchange rate fell to around 1.1340, but in the context of the last two weeks, the pair still moves in a very limited fluctuation range.

The risk of a significant deficit in France's public finance sector next year (3.5%) may put pressure on the single currency. The eurozone's problems are not good news for the zloty, which lost about 0.1-0.4% in relation to the main currencies. Today, the CHF/PLN exchange rate moved just below the 3.83 boundary (around 4:00 p.m.), i.e. to the highest level since the end of September.

Usually, good sentiment, increases in the equity market and lower risk aversion support the zloty. However, this time this is not the case, and the problems of the eurozone economies (France, Italy) combined with the dollar appreciation may cause additional pressure on the Polish currency in the coming days.

Tomorrow's preview

At 11:00 a.m., Eurostat will publish data on industrial production in the eurozone in October. The market consensus assumes that production growth pace will slow down by 0.2 percentage points per year to 0.7%. Production growth has not exceeded 1% since June this year, and such a reading (or above) would strengthen the euro. However, the chances for this are limited, taking into account the high base from last year (increase by 3.9% per year).

Tomorrow's most important publication will be announced at 2:30 p.m. when the Bureau of Economic Analysis (BEA) will present consumer inflation (CPI) data in the US in November. The median of market expectations indicates a decline in the headline index from 2.5 to 2.2% per year, and an increase in the much more significant core index (excluding energy and food prices) by 0.1 percentage points to 2.2%. In the latter case, a deviation of 0.1 percentage points may result in significant changes in the dollar. On the other hand, a reading below 2.1% would mean the lowest level since February, which could significantly weaken the US currency (however, this is the extreme scenario).