The US GDP surprises (Afternoon analysis 28.03.2018)

Stable zloty despite declines in the share markets. The GDP growth pace in Q4 in the USA surprised, but to see a clear dollar appreciation we will probably have to wait for tomorrow's inflation data.

Zloty with limited changes

While once again a significant sentiment fluctuation was observed in the markets (decreases in Asia and in Europe), the zloty remained stable. Its valuation in relation to the basic currencies was at the level similar to yesterday's closing. The exception was the franc, which depreciated by over 0.6% against the Polish zloty, and the CHF/PLN exchange rate dropped to 3.56 PLN, the lowest level since February 5th. It was caused by the global franc weakening as EUR/CHF quotations reached 1.18 today, which was the highest level since the end of January.

No falls on the zloty, which has been a rare case recently especially with the strong declines on the market. The Polish currency, like most emerging countries currencies, depreciates as risk aversion increases and flows to safer asset classes. At the moment, such dependency is not observed, probably because the decreases are mainly caused by the US market, due to speculation about possible reduction in Chinese investment in the technology sector and the problems of some companies in this sector, which has intensified the depreciation.

The data on the US GDP for Q4 surprised today. This was the third, final reading, and therefore, a significant revision was unlikely. Meanwhile, the economic growth in the last quarter of last year, according to the Bureau for Economic Analysis (BEA) data, amounted to 2.9% per year, with the previous reading at the level of 2.5% and expectations at the level of 2.7%.

Theoretically, this is a positive data for the dollar. Faster than expected economic growth may increase the chance of four rate hikes this year. The US currency reacted positively, but the scale of the changes was not large (the dollar gained about 0.2% to the euro, and about 0.1% to the zloty around 3.00 p.m.). With the potential appreciation of the dollar, we will probably have to wait for tomorrow's inflation data. If it exceeds market expectations, the dollar's value may rapidly increase, and the USD/PLN value may clearly exceed the 3.40 level and approach recent highs (around 3.46 PLN).

Tomorrow's preview

The most important data that will be published tomorrow may be that on the price level. At 2.00 p.m., the Federal Statistical Office (Destatis) will publish data on consumer inflation in March in Europe's largest economy. The median of market expectations indicates an annual growth from 1.4% to 1.7%. The expected increase would be caused by a relatively low base last year (when inflation dropped to 1.6% from 2.2%). Above this level, however, it could mean the highest growth pace since at least November last year. This, in turn, would indicate that inflation in the eurozone as a whole could also turn out to be slightly above expectations, therefore, supporting the euro's performance. However, the probability of such a scenario seems to be limited. Currently, cooling of inflationary processes rather than acceleration is seen.

Half an hour later, the Bureau for Economic Analysis (BEA) will publish a report on private consumer spending in February. It will show PCE inflation, which, unlike consumer inflation (CPI), is taken into account by the Federal Reserve when making its projection. The market consensus suggests that the PCE index (excluding energy and food prices) could rise from 1.5% to 1.6% (yearly). Given the relatively hawkish message from the Federal Reserve regarding monetary policy and interest rate levels and the lack of dollar appreciation, probably only a reading of core inflation at 1.8% (or above) would be able to significantly strengthen the dollar.