Stable zloty despite weak data (Afternoon analysis 16.10.2018)

The absence of a clear dollar appreciation allows the zloty to remain in good condition. This is not hampered by weaker than expected data from Poland.

EUR/USD still close to 1.16

Taking into account the macroeconomic data, it was not a good day for the zloty. After the worse than expected information from the labour market, where the average wage and employment growth turned out to be lower than consensus, the reading on core inflation also failed. The core inflation index published by the National Bank of Poland (NBP) was 0.8% year-on-year in September, i.e. by 0.1 percentage point less than the previous month.

Today, the data did have an impact on the zloty, the EUR/PLN quotations even dropped below the 4.29 level. However, a set of worse than expected data may suggest that the period of the relatively strong zloty is about to end. Today, the zloty was stable in relation to the main currencies. However, the GBP/PLN exchange rate rose above 4.90 due to good wage data in the UK. Although a rapid move over 5.00 in the coming days seems unlikely at the moment, the combination of high inflation in the UK (published tomorrow) combined with a positive surprise about Brexit could lead to this limit being crossed.

Despite weaker data from the eurozone and slightly higher industrial production in the USA, which grew by 0.3% on a monthly basis compared to expectations of 0.2%, the main currency pair's quotations rose above the level. This reduces the probability that the zloty basket will weaken later in the day, if there are no changes in sentiment on the market and the dollar appreciation in the evening.

Tomorrow's preview

Before midday, the market will receive important data for the Polish zloty and the pound. At 10:00 a.m. the Polish Central Statistical Office (GUS) will publish data on industrial production in Poland. The median of market expectations indicates a slowdown in the growth pace from 5.0% in August to 4.3% year-on-year in September. A drop below this level, in the context of today's weaker than expected data from the labour market, could become another argument in favour of cooling down the development pace in Poland. Even weak data is unlikely to cause the zloty's depreciation but may reduce its resistance to negative external factors.

Half an hour later, the Office for National Statistics (ONS) will present data on consumer inflation (CPI) in the UK in September. The market consensus indicates that the core inflation rate (excluding energy and food prices) will be 2.0% y/y, compared to 2.1% in August. With today's better than expected wage data for the UK, a reading of core inflation of 2.2% or higher could further strengthen the pound.