US economy still surprises (Afternoon analysis 19.02.2020)

Higher producer inflation and January, which was much better than expected on the real estate market - the dollar with new arguments supporting its appreciation. The zloty basket remains relatively stable, supported by good market sentiment.

EUR/USD below 1.08

The US economy again surprises positively. Producer inflation (PPI) rose in January to 1.7% per year, 0.4% above expectations and at the fastest pace since September last year. This is not the PCE inflation, which the Federal Reserve takes into account in its projections, or the market-relevant consumer inflation (CPI). On the other hand, it may suggest positive price processes in the economy for the dollar if consumer readings show a similar upward trend.

PPI inflation was not the only positive reading for the dollar from the US today. At the same time, the house permits in the USA also increased the most strongly in January since March 2007, supported by low interest rates in the USA (reduced three times last year). On a monthly basis, the number of permits issued increased by 9.2 percent, well above the expected 2.1 percent. The number of housing starts was also a positive surprise. Although they fell by 3.6% on a monthly basis (to 1.567 million), it was much lower than expected: by 11.2% to 1.428 million.

In the evening (at 8:00 p.m.), the Federal Reserve will present a record of the discussions of the last FOMC meeting. This may increase fluctuations a little, but there is low potential for change here. The most important thing seems to be the estimation of the impact of coronavirus on the economy, which the members of the Reserve themselves now find very difficult. The data published today highlights an increasingly pronounced imbalance between the condition of the US and eurozone economies, which may support the dollar in the coming weeks, especially with the still increased uncertainty surrounding the virus from China.

Strengthening of the dollar and the EUR/USD pair deeper moves below 1.08 level will most likely have a negative impact on the whole basket of the zloty. This impact, however, is still somewhat diminished by the positive sentiment on the equity market in both the US and Europe, where the main indexes were again at historical records this afternoon. The increased appetite for risk supports the zloty, the EUR/PLN exchange rate moves within a limited volatility range of around 4.27 and the USD/PLN exchange rate slightly below 3.96. The fluctuations around the so-called minutes from the Fed may increase slightly in the afternoon, although they should be mostly limited to the USD/PLN and are unlikely to have a significant impact on the zloty's valuation against the dollar.

Tomorrow's preview

At 8:00 a.m. the GfK will publish the data on the German consumer confidence index in February. The median of market expectations indicates a slight decrease of 0.1 points to 9.8 points. This will most likely not be a reading that will significantly affect the euro's quotations. However, if the data fail due to fears of the coronavirus and show a similar trend as the ZEW index published yesterday, the euro may have fewer arguments to rebound, especially if Friday's PMI also fails.

At 2:30 p.m., the US Department of Labor will publish a weekly report on the number of initial jobless claims. Data from the US economy have been coming overwhelmingly positive in recent weeks, increasing the dollar. The market consensus indicates the number of claims at the level of 210 thousand last week. These are rather secondary data in terms of their impact on the dollar, but a slightly better-than-expected reading may follow the trend of solid macro data from the US and additionally support the already strong US currency.