Slight stronger dollar (Daily analysis 12.04.2018)

Geopolitical issues subdued the Fed's statement and accelerated inflation. once again, data from the eurozone failed the market expectations. The zloty remains strong despite dovish message from the Monetary Policy Council.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

Obstacles on dollar's appreciation path

Yesterday's US data on accelerated inflation and the relatively hawkish minutes form the Federal Reserve did not increase the dollar's value. Today, the US currency's exchange rate is slightly stronger, but it may be a result of a better condition of emerging markets currencies or worse than expected data on industrial production from the eurozone.

There were many elements in the Fed's minutes that suggested a willingness to raise interest rates gradually in the future. The FOMC members expected inflation to accelerate in March, which was fulfilled. There are also no concerns that price increases will be below target again. The overall economic situation (labour market, consumption, investments) was assessed as good, despite the traditional expectation of a GDP growth slowdown in the Q4.

One of few arguments that evoked some concern has been the issue of the trade war. However, these concerns were mainly expressed by entrepreneurs. Three weeks ago, they were underestimated by FOMC, as they mainly concerned only steel and aluminium. Probably if minutes were not published now then threats expressed by central bankers would be more emphasized.

In general, the monetary tightening scenario of one quarterly increase has more and more chances to be fulfilled. However, this has not strengthened the dollar, due to the persistent geopolitical risks which hamper dollar's appreciation.

The EUR/USD fall below the 1.2350 boundary in the recent hours, however, it was the result of weak data from the eurozone rather than the dollar being particularly strong. Industrial production increased by only 2.9% year-on-year in February, while it was expected to reach 3.5% year-on-year. For the second consecutive month has been recorded the decrease in industrial production by 0.8% MOM. If the data does not improve significantly in March, GDP growth in the Q1 of the year may be weak in the single currency area.

Zloty strong and stable

During yesterday's MPC press conference, a symbolic and short-term weakening of the zloty was observed. In addition, losses were pared quite quickly and EUR/PLN stabilised in the range of 4.18-4.19. The Polish currency is insensitive to further dovish suggestions from the Monetary Policy Council. Yesterday's comments from President Glapinski suggest that interest rates should be maintained for the next two years. It is also possible that the scenario of no rises in this economic cycle will be possible. So why isn't the PLN weaker?

It is possible that Poland is in a quite comfortable position. A hypothetical trade war would probably harm Poland much less than other countries. Larger geopolitical problems in the Middle East also pose a relatively small threat to Poland compared to other countries and their currencies. As a result, regardless of the scenario, the situation in Poland may be relatively good, which may become the main reason for the inflow of capital to our country and the strength of the zloty.