Lower oil prices support the zloty (Afternoon analysis 23.11.2018)

The zloty's situation becomes more and more preferential, which may protect the Polish currency against potential appreciation of the dollar or aversion to the currencies of emerging countries. The euro ends the week at the lowest level in relation to the dollar.

Will euro be under pressure?

Today, the euro is under clear pressure. The PMI indexes measuring activity in industry and services in the eurozone were clearly worse than expected. These figures may suggest a much worse than expected Q4 in the eurozone as a whole. If this scenario materialises, the European Central Bank (ECB) is also likely to revise its projections and delay the withdrawal from the ultra-mild monetary policy that it is currently conducting.

Today, the EUR/USD exchange rate fell to around 1.1340, i.e. to the lowest level in a week. For the euro, the next week will be important, when data from both the eurozone and the USA will be published.

The decrease in the main currency pair's exchange rate usually has a negative impact on the zloty's quotations. However, today the zloty was relatively stable. The EUR/PLN exchange rate fell to 4.29 again in the afternoon, after gradually increasing to 4.30 from morning to midday. The zloty's good condition is clearly seen in its relation against the forint. In regard to the Hungarian currency, the zloty increased to its highest level in a week.

Today, the investors' positive attitude towards the zloty was also influenced by the price cut on the oil market. The price of WTI oil (the US type of oil) fell even above 7%, under 51 USD per barrel, i.e. to the lowest level in just over a year. Poland is an importer of crude oil and its lower price may have a positive impact on the trade balance and the GDP growth pace. Moreover, it is worth noting a series of positive data from the national economy (industrial production, retail sales, GDP growth pace) and the latest record of the Monetary Policy Council talks, from which it emerged that two members voted for the interest rate increase.

With no trading sessions on US markets and empty calendar of macroeconomic publications for the rest of the day, the zloty's quotations are likely to oscillate around current levels.

Next week's preview

Even though there are no significant publications planned for the following week for the pound, incoming information on Brexit may still influence the significant fluctuations of the British currency.

On Wednesday, the Bureau of Economic Analysis (BEA) will publish data on GDP growth pace in the USA in the Q3. This will be the second reading, but BEA often revises them upwards with the inflow of more and more components. If BEA again exceeds expectations (currently 3.6% y/y), especially by 0.2 percentage points or more, it may increase the probability of the necessity to raise interest rates above the neutral level. However, the statements of the Vice-President of the BEA, who suggested that there was no need for such action, have to be considered.

On Thursday, there will be present the most important publication, also concerning the US economy. BEA will present PCE inflation in October, a type of inflation that the Federal Reserve takes into account in its projections. Therefore, the data may have a significant impact on the dollar quotations. The core index will be the most important of the BEA report in this context. If it exceeds 2.0% y/y, the dollar may significantly appreciate, which could also slightly weaken the zloty basket.

On Friday, Eurostat will present preliminary data on consumer inflation in the eurozone in November. Again, a significant deviation (>0.1 percentage points) of the core index from the previous month's level (1.1%) could cause significant euro fluctuations. It could be under high appreciation pressure if the reading is above 1.2% y/y, although the chances of exceeding this level seem to be low.