Pound's upward trend continues (Afternoon analysis 27.02.2019)

The British currency appreciates due to the weaker situation of the dollar and the euro. The zloty becomes more stable while the dollar does not appreciate. Tomorrow's GDP data in the USA for Q4 will show what kind of impact had the partial government shutdown on the economy.

The EUR/USD pair around 1.14

The strong pound appreciation remains the number one topic in the currency market. Today, the pound's quotations against basic currencies reached new highs for several months, supported by optimism due to the decreasing chances for a hard Brexit. The GBP/USD quotations exceeded the 1.33 level today, and although there is still a lack of about 12 per cent to the levels before the referendum on the Brexit, the range for the pound's appreciation seems to be large.

The increases currently observed on the pound are also supported by the flow of part of the capital from, among others, the euro and the dollar. The eurozone is in a much weaker economic condition than expected. On the other hand, the US economy is in much better shape, but the US currency is currently under pressure due to the Federal Reserve's change in its attitude to monetary policy towards the more dovish one. Although the data from the US economy coming in the following months may increase the probability of monetary tightening this year and as a result strengthen the dollar, the market sentiment is oriented towards its slight weakening, which reflects, among other things, the EUR/USD exchange rate, which in the last two weeks increased slightly above 1%.

The dollar's situation (no appreciation or even its slight weakening) supports the Polish currency. The EUR/PLN quotations moved from over 4.34 to about 4.32, and USD/PLN quotations move below 3.80, compared to the one and a half year highs (3.86) observed in mid-February. The global appreciation of the pound caused a new high in the GBP/PLN pair, approaching the level of 5.06. The baseline scenario continues to show significant fluctuations of the pound, although the trend in the longer term indicates its systematic appreciation in relation to the zloty. Around 14% are missing from the pre-referendum levels, but most likely they will not be reached quickly. This would require at the same time a positive decision on the Brexit and a much faster than expected economic slowdown in Poland. The risk of the latter is currently limited. However, if positive information on Brexit from both the UK and the EU is received in the coming weeks, the GBP/PLN levels above 5.00 may become a regularity.

Tomorrow's preview

Tomorrow the preliminary consumer inflation data for the largest economies of the eurozone in February, including France, Spain, Italy and Germany, will be published. This may increase the fluctuation range of the euro, but the chances of these publications having a significant impact on its valuation are limited. The probability of a positive surprise is also limited, and the chances of monetary tightening by the European Central Bank this year are even lower.

Slightly more important, in the context of the impact on the currency market, may be the already delayed publication of the US GDP growth pace for the Q4 by the Bureau of Economic Analysis (BEA) at 2:30 p.m. These data are essential as they may show the impact of a partial government shutdown in the US. Although now, the incoming data for 2019 will be the most important for the dollar, both in terms of GDP and inflation. The median of market expectations indicates that the US economy has been growing at a rate of 2.3% year-on-year in recent months. This period turned out to be disastrous for the eurozone economy, and if the BEA publication exceeds market expectations, the gap between the two regions may widen and, as a result, the dollar may become slightly stronger.