Support for the pound (Daily analysis 13.02.2018)

The global market awaits additional impulses. The pound increased significantly after inflation data from the UK and a statement from the Bank of England. The zloty stabilised close to 4.17 to 4.18 against the euro. Today's current account data may show a large deficit, but this should not clearly affect the zloty.

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

• 2:00 p.m.: December's data on current account in Poland (estimate: negative 425 mln EUR).

Waiting for signals...

The calmer market translated into a slight weakening of the dollar. The US currency is also not supported by the adjustment of yields on the US government bonds. Therefore, the EUR/USD returned above 1.2300 boundary.

Although the recent strong fluctuations in the share or bond market have been accepted by the currency market, the strong increase in risk aversion is positive for the dollar. It will be considered as a safe haven, especially if the yields on government bonds remain probable.

In turn, moderate fluctuations (slight drops or limited increases in the stock market) are rather negative for the dollar. Therefore, the attractiveness of emerging markets increases, which cause the capital outflow from the dollar.

Support from the pound

The sterling's quotations have been under significant movements recently. Last Thursday, a hawkish statement from the Bank of England was released, which offered an opportunity for the pound to appreciate in the average term. The pound's upward trend did not last long, due to the rapid deterioration of the global sentiment (usually negative for sterling) and the anxiety connected with Brexit reports (broad discussions on the government's report on the economic impact of leaving the EU and suggestions from Brussels that the agreement is not certain).

Today, data on inflation was published (it was significantly higher than expected). Prices in base terms rose to 2.7% year-on-year (consensus 2.6% YOY). In addition, a reading of 2.7% means that the result for August-November 2017, where the data exceeded 5-year highs, will be repeated. Generally, inflation was expected to achieve a lower level rather than remain close to long-term highs.

Moreover, two statements from Bank of England representatives were published yesterday. They suggested an earlier increase in interest rates. Therefore, it is possible that the market will start to bet on the Bank of England's April interest rate increase or even for two increases over the next 12 months. If the sentiment in the broad market does not deteriorate significantly and the transition period before Brexit remains the core scenario, the probability of further pound increases should increase.

Zloty still stable

The zloty's quotations remained stable. The EUR/PLN pair is still close to the 4.17-4.18 level and this boundary will probably be maintained in the proceeding hours. The global pound's appreciation (details in the previous paragraphs) pushed the GBP/PLN pair above the 4.70 level.

In the afternoon, the Polish economy will receive the NBP current account data. Yesterday, the preliminary GUS data showed that the balance on the foreign trade account was negative in December and amounted to about 1.4 billion EUR. This deficit is very large and if it was confirmed by the central bank (the GUS data is not always in line with NBP's data) it could be the largest monthly trade deficit in 9 years (1.45 billion EUR).

This would be really negative information for the zloty. It could be ignored and considered as a one-off event, however. Moreover, the trade balance has been more positive than negative recently and only a few months with a significant deficit would have to happen in order for it to cause a greater market concern.