Inflation in Poland the lowest since 2016 (Daily analysis 15.02.2019)

Morning trading brings small changes for the euro or the zloty. However, the situation is still not favourable for both currencies. Low inflation in Poland in January reduces the already low prospects for higher interest rates in the next two years.

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

• 3:15 p.m.: Industrial production in the USA in January (estimates: +0.1% month-on-month).
• 4:00 p.m.: The University of Michigan consumer sentiment index (estimates: 93.5 pts.).

EUR/USD just below 1.13

The week on the markets ends with mixed sentiment. The second partial government shutdown, which could have had a negative impact on the economy, has been avoided. However, President Donald Trump also announced that he would use his power and reallocate some of the funds from other planned spendings (in total 8 billion USD for the construction of a wall on the border with Mexico). This, in turn, increases the likelihood of further battles in Congress and puts some Republicans in a difficult situation - they have to decide whether to support the president or their ideological views. In any case, the lack of another shutdown is positive news for the dollar and the US economy.

Another negative factor was yesterday's US retail sales data for January. The data showed the highest monthly decline since 2009, to which shutdown could have contributed to some extent. However, this increases the chances of weak GDP growth in Q1 in the USA, a quarter that is still often slightly weaker (due to seasonal factors). Unexpectedly, yesterday afternoon, press agencies started quoting US officials who are currently negotiating with the Chinese authorities on international trade.

According to this information, there are still significant differences between the parties, which reduces somewhat the impact of Donald Trump's statement the day before that he would be willing to postpone the introduction of additional duties on goods from China (1 March) if the agreement was achievable. Yesterday's reports are possibly worse news for the euro than for the dollar, as further complications in international trade would affect the European economy to a greater extent than the US. In the global situation little is currently changing for the euro. The EUR/USD quotations are moving within a limited fluctuation range, slightly below 1.13. This is still close to the lower limit of the last 1.5 years.

The economic slowdown in the eurozone and the continuing strong dollar are a bad combination for the zloty, which has been clearly losing value since the beginning of February. Today's GUS data on consumer inflation (CPI) in Poland will not be helpful. Inflation declined to 0.9% in January in annual terms. This was the first reading of inflation below 1% since December 2016. The probability of rate hikes in Poland this year falls practically to zero, and the chances that they occur in 2020 also become very limited with each subsequent month.

Today, the zloty's basket strengthened slightly, which was mainly driven by the fact that the dollar's appreciation was halted - yesterday's weak data from the US helped the zloty. The EUR/PLN quotations moved slightly away from 4.34 and ranged between 4.32 and 4.33 today. However, the base scenario remains the gradual weakening of the zloty in relation to the main currencies.