Pressure on the zloty (Daily analysis 08.03.2018)

A slightly relaxed tone regarding tariffs from the White House. The euro stays under limited pressure before the ECB meeting. The zloty's weakness noted during yesterday's MPC conference remains stable. The EUR/PLN quotation is slightly above the 4.20 boundary.

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

• 2:30 p.m.: Beginning of the press conference after the ECB's decision. Publication of the statement and economic forecasts.

Calmer situation

Despite Gary Cohn's exit from the White House, fears about the negative effects of US customs duties are slightly diminishing. This may be caused by the fact that other White House representatives suggest milder solutions, which means excluding new US allies from new restrictions.

According to the Financial Times and Bloomberg, countries including Canada, Mexico, Australia, the United Kingdom and European Union countries may be released from new customs duties. American Trade Secretary Wilbur Ross was quoted by FT as encouraging the necessity of keeping calm and said that President Trump was "quite flexible" in his approach to the United Kingdom and other countries. Moreover, more than 100 Republican members of the House of Representatives also signed a letter regarding the US allies to be released from tariffs.

For now, it can be said that apart from steel and aluminium, the issue of restrictions on foreign trade will not be extended. Additionally, the impact on currencies is still rather unclear and it should remain limited.

Signals from the ECB

Today's data on orders for durable goods in Germany could have raised some concerns. In January (seasonally adjusted), orders fell by almost 4%, which was twice as fast as economists had predicted. However, monthly data is very variable. Additionally, year-on-year growth amounted to 8.2% in January. This is slower than expected, but still a good result.

In the afternoon, market attention will be focused on the conference following the ECB's meeting and new macroeconomic projections by the central bank. Some economists speculate that the part related to the possibility of increasing the asset purchase program in the case of worsening inflation projections will be removed.

However, given the recent minutes from the ECB, this is not a base case scenario and most members should still support the open gateway remaining rather than a hypothetical increase in the scale of asset purchase. Therefore, maintaining the unchanged ECB statement could slightly weaken the euro.

New macroeconomic projections should have limited impact on the euro. A slight increase in the expected economic growth for the coming years could perhaps be noticed, but changes will only be minimal. Other issues, such as the Italian elections or the hypothetical trade war, will likely also discussed. However, Draghi's comments are unlikely to cause significant movements in the market. Therefore, the ECB's statement will be crucial, which is likely to remain unchanged in its key points. This may slightly deepen the decreases in the EUR/USD pair that were observed in the morning.

Dovish MPC, pressure on the zloty

As it has been mentioned over the past few weeks, the Council is likely to move towards a more dovish stance and that its first rate hikes may agree more closely with the ECB's monetary policy tightening measures (end of 2019) than with Q4 of 2018. It can be said that yesterday's conference confirmed this expectation.

The Polish zloty suffered significantly as a result of the dovish message. This is particularly visible in relation to the forint. Since the beginning of the week, the zloty, in relation to the Hungarian currency lost about 1%, while the EUR/PLN pair exceeded the 4.21 boundary yesterday, reaching the highest levels since the beginning of the year.

Today, the situation stabilised, but it seems that the core scenario will be to keep the EUR/PLN slightly above 4.20. However, it is possible that in the following days, some MPC members will be deepening the dovish message at the conference. This should reduce the risk of further zloty depreciation due to yesterday's reports from the Council.