The zloty dependent on the dollar (Afternoon analysis 22.05.2018)

The rebound on the zloty did not last long - the EUR/USD pair fell below 1.18, which puts pressure on the Polish currency. Tomorrow's PMI data for the eurozone may slightly widen the fluctuations' range.

The zloty again below in red

The absence of significant macroeconomic publications, combined with a good sentiment on the market, translated into a slight rebound on the dollar today. The main currency pair (EUR/USD) appreciated to just over 1.18, although it tested the 1.17 level yesterday. This is not caused by decreased concerns about the situation present in Italy, which should continue to be a burden for the eurozone.

The improvement in US-China relations and the suspension of customs wars between these countries have led to an increased appetite for risk. The US market indexes clearly gained yesterday, and today similar increases are observed in Europe. The main index of the German Dax market has been rising to its highest level since the beginning of February, paring most of the decreases caused by concerns about international trade.

The decrease in risk aversion led to an appreciation of most emerging country currencies (with a clear omission of the Turkish lira, which was depreciating). In the morning, the zloty benefited from this and gained in value. The euro dropped to 4.27 PLN and for the dollar fell to 3.61 PLN. The following hours showed a gradual strengthening of the dollar (EUR/USD quotations dropped to approx. 1.177), which also translated into a weakening of the entire zloty's basket.

Around 3.00 p.m., the euro cost 0.02 PLN more and the dollar cost less than 0.03 PLN more. Unfortunately for the Polish currency, the upward trend (rather than the downward) of the dollar is higher, which, combined with the lack of higher interest rates prospects in Poland, may further weaken the zloty in relation to the main currencies.

Tomorrow's preview

Tomorrow, the IHS Markit will publish preliminary PMI data for the industrial sector and services of the main European economies (9.00 a.m. for France, 9.30 a.m. for Germany, 10.00 a.m. for the eurozone). The median of market expectations indicates marginal differences between May and April's readings. However, given the recent significant changes in the euro's valuation or the currencies of emerging countries, even small deviation from the consensus could give a boost to the growth or decline of the euro. However, the growth potential of the single currency appears to be limited. The inflation is still subdued and the political situation in Italy is also likely to come as a surprise at the moment.

At 10.30 a.m., the Office of National Statistics (ONS) will publish consumer inflation data (CPI) in April in the UK. The market consensus indicates that the main reading remains at 2.5% per annum and that the base index (excluding energy and food prices) has fallen from 2.3% in March to 2.2%. Below-anticipation inflation (especially base inflation) could mean a discount on the pound, given the relatively doves in the tone of the Bank of England's communiqué following the last meeting of the Monetary Committee.