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Slight changes in zloty (Afternoon analysis 25.02.2019)

25 Feb 2019 16:00|Bartosz Grejner

The zloty starts the week with a stable situation but remains weak in the context of recent weeks. Optimism related to trade with limited impact on the currency market.

Zloty may depreciate

The information of the day was the declaration by US President Donald Trump that the imposition of additional duties on Chinese imports would be postponed. Initially, they were to be imposed on March 1st. The positive sentiment translated mainly into increases in the global equity market. In the case of currencies, the reaction was somewhat more subdued. The increased appetite for risk resulted in a drop in the value of the yen and also the dollar, but changes in the case of basic currency pairs were limited. The EUR/USD exchange rate moved around 1.1350 with a small fluctuation range.

Limited changes also applied to the zloty, which today remained stable in relation to the basic currencies. However, the zloty stabilised after its weakening in the previous three weeks. A strongly appreciating equity market and a slightly losing dollar are, in theory, good conditions for the Polish currency. However, the zloty's exchange rate is practically unchanged, which may suggest that a worsening of sentiment and/or appreciation of the dollar may further weaken it.

The currency market awaits a stimulus that will free quotations from lethargy. If the trade agreement between the US and China is finalised quite quickly, one of the uncertainties for the US economy could be removed, which could support the dollar in the coming months. The much worse state of the eurozone economy than the US suggests that, despite increased uncertainty around the monetary policy of the Fed, the dollar should eventually return to a growth path, also against the euro. At the same time, this would be a negative signal for the zloty, on which the supply pressure may increase.

Tomorrow's preview

At 8:00 a.m. GfK will publish German consumer climate index. The median of market expectations indicates no change in its level (10.8 points). Despite weak data from the German economy and a decrease in its forecasts for 2019, consumer sentiment remains at a high level. The publication of this index is likely to have little impact on the euro given the current market situation, i.e. the optimism linked to the postponement of the imposition of duties on China by President Donald Trump.

Jerome Powell, Fed's Chairman, will provide a half-yearly monetary policy report to the US Senate's Committee on Banking, Housing and Urban Affairs. The event will start at 4:00 p.m. Powell's speech (continued on Wednesday) may significantly increase the dollar's fluctuation range. However, the final impact may be limited due to the Fed's dependence of the further monetary policy path on macroeconomic data that will be received in the coming weeks and months. The way they will develop is likely to modify (or not) expectations regarding rate hikes and reductions in the Fed's balance sheet.

25 Feb 2019 16:00|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

25 Feb 2019 13:30

Strong movement on Polish bonds (Daily analysis 25.02.2019)

22 Feb 2019 16:00

Speeches by representatives of the Fed and the ECB (Afternoon analysis 22.02.2019)

22 Feb 2019 13:48

Another set of weak data from Germany (Daily analysis 22.02.2019)

21 Feb 2019 16:42

Pound appreciates, zloty remains weak (Afternoon analysis 21.02.2019)

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