Stronger dollar depreciates zloty (Afternoon analysis 20.02.2018)

Data above the line did not support the zloty as a stronger dollar became a burden for the Polish currency. Today's quotations on the US market will be important for the zloty.

Zloty insensitive to favourable data

During today's session, gradual dollar appreciation was observed. The main currency pair's quotations (EUR/USD) decreased to 1.232, while the increase in the dollar's value was supported by a limited demand for emerging currencies, including the zloty. The EUR/PLN exchange rate moved from around 4.13 PLN to approx. 4.15 PLN and the USD/PLN exchange rate moved from 3.34 to 3.36 (around 3.30 p.m.). Almost the entire zloty basket was in worse condition, but losses were limited.

Today is characterised by a lack of significant macroeconomic publications from around the world and the calendar for the rest the day is also practically empty. Although the Polish Central Statistical Office (GUS) published better than expected data on industrial production, retail sales and producer inflation, the data had little impact on zloty valuation. The sentiment on the market is likely to be significant for the quotations of the Polish currency in the following hours.

After Monday's trading-free day, the US market will be more active again. If declines in the US market are noticed during the afternoon session, the zloty may remain under slight pressure. However, today it is unlikely to observe changes in its valuation. Market attention may already focus on tomorrow's events, i.e. minutes from the Federal Reserve.

Tomorrow's preview

Tomorrow, the publication of minutes from the last FOMC (Federal Open Market Committee) will be the most important event for the market.They are scheduled to be published at 8.00 p.m. Perhaps, apart from the publication of Thursday's minutes from the recent European Central Bank (ECB), it is the most significant event of the week.

The statement after the last FOMC meeting was relatively hawkish, therefore, there is a chance that the minutes will have a similar tone. This would be positive news for yields on the US Treasury and in theory, for the dollar. In recent years, increasing yields have not agreed with the growing dollar, whose value in relation to the euro has fallen to 3-year lows.

The zloty will benefit if the dollar remains weak and the good sentiment on the US market prevails (on which the overall demand for emerging currency may also depend).

Tomorrow in the morning (at 10.30 a.m.), the Office for National Statistics (ONS) will publish December’s data on the average wages in the UK. In the two previous months, their annual growth rate was 2.5%, also in December, the median of market expectations indicates the same level. This is still about 0.5 percentage points below inflation in the UK, which means that in real terms British wages are falling. A reading higher by 0.1 percentage points than the consensus could, therefore, strengthen the pound, as it could suggest an increase in the chances for a quicker monetary tightening.