High volatility is expected (Afternoon analysis 21.02.2018)

Slightly worse sentiment on the market, a stronger dollar and expectations towards the record of talks from the last FOMC meeting scheduled to be published in the evening caused the zloty to depreciate. The relatively hawkish "minutes" may result in an increase in the dollar price to 3.40 PLN.

Zloty incurs losses

During today's session, a continuation of yesterday's trend was observed - the dollar appreciated slightly, while the market sentiment was again slightly worse (the drops on European markets). The gradual depreciation of the Polish currency was visible from the morning hours. After the opening of the US session, the euro cost around 4.17 PLN and the dollar - 3.38 PLN - about 0.02 PLN more than during yesterday's closing. Compared to yesterday's valuation, almost the entire zloty basket was losing, even to the Hungarian forint (approx. 0.4%).

Sentiment on the market was not so negative (the US indexes opened on pluses) and the dollar did not strengthen significantly (EUR/USD pair was slightly over 1.23) to justify such a movement on the Polish currency. In the evening, however the market will be waiting for the minutes of the latest meeting of the FOMC (Federal Open Market Committee). There is a high probability that they will have a relatively hawkish tone, therefore, it may result in zloty depreciation.

Around the "minutes" publication time (20.00 p.m.), significant market fluctuations in the value of the dollar, yields on the US Treasury bonds and share markets are expected. Suggestions of four rate hikes this year, which would be positive for the US currency, may turn out to be important in the minutes. If the dollar finally strengthens (which may also have a negative impact on the stock market across the ocean) the zloty may lose further and the price for the dollar may go up to 3.40 PLN.

Tomorrow's preview

The publication of minutes (1.30 p.m.) after the recent European Central Bank's meeting will be the most important event of tomorrow. Mario Draghi's press conference (the President of the ECB), after the meeting contained relatively mild tone. The chances for suggesting the end of the bond-buying program are limited, given that a clear reflection of inflation has not occurred (its growth is expected).

However, minutes may include the problem of the maintained high euro exchange rate, which may hamper inflation's return to an upward trend. In theory, this could weaken the euro slightly, as it may mean monetary tightening later. In practice, considerable fluctuations in the euro's valuation may be expected, which may also affect the sentiment on the market. If euro weakening is observed, which would have an impact on dollar appreciation, this could significantly reduce demand for the assets of emerging countries, therefore, weaken the zloty.