The pound may appreciate (Afternoon analysis 22.03.2018)

The Polish currency is stronger due to the lack of dollar appreciation. However, the market's deterioration in sentiment caused by global trade issues limits its potential growth. Interest rates in the UK were unchanged, but two members wanted to increase them.

Zloty has a slightly better condition

The lack of strengthening of the dollar after yesterday's Fed statement and the press conference supported zloty quotations. The Polish currency appreciated, but the increase was limited. It was probably caused by the issues of international trade and customs tariffs, which have a negative impact on the financial markets (price reductions on world markets) and increase risk aversion, at the same time reducing the demand for more risky asset groups, including the zloty.

Today, the euro depreciated to about 4.22 PLN (yesterday it was even more than 4.24 PLN), while the dollar oscillated around 3.42 PLN. The zloty appreciated in relation to the Hungarian forint by about 0.3%, similar to the pound, which exchange rate after reaching 4.86 PLN dropped to 4.83 PLN. However, this may be the result of the deterioration in market sentiment (share market sales), which also had a negative impact on the pound. While the Bank of England's monetary policy decision which has turned out to be relatively hawkish was published today, in the long term, as market sentiment improves and risk appetite increases again, the pound may appreciate.

Both the interest rates and the asset purchase program remained unchanged. However, the distribution of votes was not as expected: 2 out of 9 members voted in favour of increasing interest rates (7 in favour of keeping them unchanged), although the market consensus assumed unanimity in the decision. Ian McCafferty and Michael Saunders decided to vote in favour of the 25 base points increase due to the fact increases in wage growth at a faster pace, which could present a risk of inflation rising too much in the average term.

Therefore, the British currency may react relatively strongly to further data on the average wage growth pace. Wage faster (than expected) growth could suggest that more members will switch to those who vote for the increase.

Tomorrow's preview

At 10 a.m. the Polish Central Statistical Office (GUS) will publish February's data on the unemployment rate in Poland. The median of market expectations indicates a decline from 6.9% to 6.8%. However, this data is unlikely to have significant impact on the zloty, which quotations are rather the result of internal weakness related to the prospects of lower interest rates in Poland for a longer period than expected, as well as external factors (such as the dollar and the euro's quotations, or the market sentiment).

Three and a half hours later, the US Census Bureau will publish February's data on orders for durable goods. After the orders failed to meet expectations in January (they fell by 3.7% per month - a decrease of 2.4% was expected), the market consensus assumes their growth in February by 1.5% compared to the previous month. A relatively more important (and less volatile) core index, i.e. excluding transport orders, could increase by 0.5%, after also an unexpected decrease of 0.3%. Readings exceeding the consensus would be positive for the dollar, especially in the context of its weakening after Fed's last decision on interest rates (the tonne was rather hawkish) and supply pressures on the euro due to weaker "soft" data (PMI).