Inflation reaches its highs (Afternoon analysis 11.04.2018)

Inflation in the United States has been rising to its highest levels for a year, but events related to Syria subdued the market's reaction. The zloty was stable after the decision to keep interest rates unchanged.

Geopolitics vs data

This morning, it looked like the session would be mainly under the macroeconomic data influence. However, even before the US inflation readings were published, a rather violent exchange of views was seen between the US and Russia on Syria. This resulted in falls in markets and lower yields on the US Treasury bonds. It also did not send a positive signal to the dollar, although the reaction in currencies was very limited.

The data on inflation from the US shows that inflation is accelerating. Prices in base terms increased by 2.1% year-on-year in March. Although this reading was in line with the median of economists' expectations, the value at the level of annual highs suggests that perhaps a more constant trend in inflation will be observed.

The Fed's members while analysing the data may point out, for example, that the service inflation accelerated to 2.9% year-on-year in March. This means that the pressure on costs and wages in the US economy is increasing, which may be an argument to maintain the pace of monetary tightening at 0.25 percentage points per quarter. In theory, at least, this is also a positive signal for the dollar.

If the fears related to Syria persist, it is possible that the dollar will start its upward movement. It is still quite likely that the minutes from the Federal Reserve will be more hawkish than the market expects. The scenario of the dollar paring part of the last start seems to be still valid.

Strong zloty

The zloty, like other currencies in the region, remains stable. The lack of pressure on the Polish currency related to the inflation acceleration in the US probably results from the focus of the global market on reports on Syria.

A press conference is still ahead of us, following the Council's meeting and the minutes from the American Central Bank. If the geopolitical issues resolve, the impulses from these events should be negative rather than positive for the zloty. However, the hypothetical scale of changes is likely to remain limited.