Stable zloty today (Afternoon analysis 08.03.2018)

The ECB is slightly more hawkish in the statement after the Governing Council meeting. The zloty stopped depreciating after yesterday's dovish MPC conference.

Only a small surprise

The zloty clearly depreciated yesterday afternoon, which was mainly caused by the dovish message during the MPC press conference. The new macroeconomic projection, in line with expectations, showed a slightly flatter inflation path and higher economic growth pace. However, the conference itself had a very accommodative tone as rate hikes are not expected this year and their growth in the next year will depend on whether inflation will increase.

As a result, the euro increased to 4.22 PLN, the highest level since mid-December. The zloty depreciated in relation to other major currencies, but the incurred losses were relatively limited. The euro value also fell below 4.21 PLN today and remained near 4.205 PLN until the statement of the European Central Bank (ECB) after the two-day meeting of the Governing Council.

The most important event of today was the single and only change in the ECB statement. The passage on the possibility of increasing the size or duration of an asset purchase program, if expectations or conditions become less favourable, had been deleted.

The "hawkish" removal of this passage clearly strengthened the euro as the main currency pair's quotation (EUR/USD) increased from about 1.237 to 1.242, but this reaction was within the fluctuation range observed in the last few days. Although the euro may be a little stronger today, it is not the most important part of this statement. Taking into account the good eurozone economic condition, the probability of a significant deterioration in the current situation or expectations is rather limited.

Although Mario Draghi's press conference may cause some volatility in the foreign exchange market, the changes should not be significant. Market attention may quickly shift back to customs issues (at 7.30 p.m., Donald Trump confirmed the meeting in the White House) and a report published tomorrow on the labour market in the USA, where the most important role will be played by February's data on wages.

Tomorrow's preview

At 10.30 a.m., the Office for National Statistics (ONS) will publish January's data on industrial production, construction production and trade in the British economy. An increase in pound fluctuation around publication hour may be expected. The market consensus indicates an increase in industrial production by 1.8% per year (and 2.8% of its largest component - manufacturing production). The trade deficit is projected at 12 billion GBP, which is a drop from the 13.6 billion seen in December. In turn, construction production is expected to record a second consecutive drop (on a yearly basis), the economist expectations indicate a decline by 0.5%. Better than expected data could help the pound by strengthening it, but in the long term Brexit issues will play a decisive role in its valuation.

Scheduled for 2.30 p.m. publication of February's report from the US labour market will attract the most attention from investors. Data on changes in employment in the non-farm sector will be important for the dollar. However, an increase in the range of 150k - 250k is observed, this data should be market-neutral (yesterday's reading of the private agency ADP showed an increase by 234k).

However, the most important part of this report will be how the average hourly wage has changed. In January, wages increased by 2.9% in comparison to the corresponding month of the previous year. The median of market expectations indicates an increase of 2.8%. Exceeding this value by 0.1 percentage points could increase the chances of four rate hikes this year in the USA. This could, in turn, contribute to dollar appreciation. However, its valuation and the entire currency market is currently affected by political and economic factors (increased protectionism), which may distort the final impact of this data.