The zloty remains weak (Afternoon analysis 20.03.2018)

Worse than expected data from the eurozone, showing deterioration in sentiment and a gaining dollar, exert negative pressure on the Polish currency. Tomorrow's message from FOMC may further weaken the zloty.

Dollar goes up

Market attention has already shifted to tomorrow's FOMC (Federal Open Market Committee) statement and press conference. Probably due to the anticipation of a somewhat more hawkish tone of the message as the dollar was slightly appreciating today. The increases were particularly marked in relation to the euro, following the loss of the single currency caused by the ZEW economic sentiment index, which turned out to be clearly below expectations both in the entire eurozone and in its largest economy (Germany).

The main currency pair's quotations (EUR/USD) dropped by about 0.6% at 3.00 p.m. to 1.226 today - a lower limit since March 2nd. Globally, the stronger dollar affected the zloty's condition. The Polish currency was in the red today, even in relation to the local Hungarian forint. The dollar's price rose to nearly 3.45 PLN today, the highest rate since January 12th. The hawkish message could push the US currency towards 3.50 PLN tomorrow.

The next trading hours are rather unlikely to bring any significant changes in currency valuation as there are no major publications planned for this afternoon. Therefore, the value of the zloty will probably be stable and oscillate around the current levels.

Tomorrow's preview

Tomorrow, the markets will witness the most important event this week - FOMC's decision on interest rates in the US. It is practically certain that they will be raised. The market will focus on the statement (7.00 p.m.) and the press conference (7.30 p.m.). However, the question about whether FOMC will raise rates 3 or 4 times this year will be closely examined.

It will also be the first meeting of Jerome Powell, the new President of the Federal Reserve. A statement from the refreshed FOMC (annual change of the FOMC local representatives) suggesting four (or more) rate hikes this year could cause a significant dollar appreciation. In turn, if the median of expectations remains unchanged (in terms of the number of rises), the dollar may weaken slightly, given its recent appreciation.

A scenario with a strongly appreciating dollar would also be negative for the zloty, which is in a weakened position - mainly due to lower inflationary pressure and lower probability of monetary tightening in this and even in the following year.