Important US data (Daily analysis 14.02.2018)

The relatively calm sentiment is not in favour of the dollar. European data on production positively surprised, but GDP was in line with expectations. US data is in the limelight. The zloty remained stable. GDP reading for Q4 is close to expectations, but seasonally-adjusted data is not so good.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 2:30 pm: January's data on inflation from the USA (estimates:1.9% YOY and 0.3% MOM; excluding fuel and food prices, 1.7% YOY and 0.2% MOM),
• 2:30 pm: January's retail sales in the US (estimate: 0.2% MOM; excluding cars and fuel 0.3% MOM).

Stable situation bad for dollar

The absence of major changes in the market and limited movements on the US Treasury bonds present an unfavourable scenario for the dollar. This situation has been present in the market for the last several hours, which, moreover, caused an increase of the main currency pair and the EUR/USD amounted to 1.24.

Q4 data on GDP publication for the eurozone appeared to be a positive surprise. According to Eurostat data, the single currency area's economy developed at the 2.5% rate in 2017, which is in line with expectations. Germany's result (GDP adjusted by working-day) amounted to 2.9% YOY for Q4 and 2.5% YOY for the whole year. This was also close to market estimates.

Moreover, the eurozone's production surprised. In December it increased by 5.2% year-on-year (around 1% above market estimates). Additionally, the increase in capital goods' production investment increased by 7.7% year-on-year (the highest for over 6 years). From the eurozone countries, Germany should be noted, where production in December last year amounted to +6.8% year-on-year. Therefore, eurozone data is generally good, but the assumption that this growth pace will continue in the coming months is too optimistic.

Data on US inflation in the limelight

The publication of US data, especially that concerning consumer inflation for January, will be the most important event in the afternoon. The Fed's approach to the future monetary policy in March (such as estimates of rate hikes in subsequent quarters) may depend on this reading.

Investors will mainly focus on core inflation. Since May, it has been in a narrow fluctuation range (1.7-1.8% year-on-year). Currently, a drop of 0.1 percentage points year-on-year to 1.7% year-on-year is expected in comparison with December's results. The dollar is likely to remain at 1.8% year-on-year, but only a clear exceeding of estimates (1.9% YOY or above) would be able to let the dollar to escape from this rather weak condition.

The risk of increased traffic applies to both sides. Theoretically, inflation should rise, but this theory has failed over the last quarters. If core inflation was to fall to a level of 1.6% (rather less likely), the market could start to wonder if the valuation of the monetary tightening has chances to come into force. That would be a negative message for the dollar.

Zloty without changes

Changes on the EUR/USD pair are visible when we look into the USD/PLN pair’s quotations. The EUR/PLN quotations remained relatively stable. The Polish GDP data published today for Q4 (5.1% year-on-year growth) is also unlikely to be significant for the PLN.

The growth in Q4 alone is not as spectacular when presented in the seasonally adjusted form. It was 4.3% year-on-year, which is relatively close to Austria (3.6% YOY), Finland (3.9% YOY) and Germany's results (2.9% YOY). Therefore, it is likely that subsequent readings (seasonally adjusted) will be closer to the 4% boundary than 5%.

In the case of impulses for the zloty, the most important ones will be from the USA. Higher than expected inflation from the US may slightly weaken the zloty. On the other hand, if core inflation slowed down to 1.6% year on year, a strengthening of the Polish currency in relation to the dollar will then be expected. This first scenario (higher inflation in the US) is more probable and could place the USD/PLN pair above 3.40.