Wages are growing faster (Daily analysis 18.12.2018)

Although there is no evidence of a significant impact on inflation, wages in Poland have been rising the fastest since April. Again, the dollar loses slightly before Wednesday's Federal Reserve events.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

Weaker dollar, oild drops below 50 USD

Yesterday's US session confirmed the recently observed trend: the equity market has recently been largely separated from the currency market. The main indexes in the USA have reversed the entire profit generated this year, even more than in the case of Nasdaq or S&P 500. A significant deterioration of sentiment on the equity market most often caused pressure on the euro and above all on the currencies of emerging countries (EM), including the zloty.

While emerging countries were largely protected by the simultaneous fall in oil prices (WTI fell below 50 USD/bbl), as they are mostly net importers of oil, the currency market reacted only in a limited way. The Japanese currency (yen) as one of the so-called safe havens gained yesterday, but these were not significant increases.

The dollar has been stable since yesterday evening. The EUR/USD pair oscillated around 1.1350, which meant a slight weakening of the US currency, by about 0.3% compared to Friday's closing. This morning, after the start of the European session, we observed a further weakening of the dollar. The EUR/USD quotation jumped to about 1.1390, and the dollar index (DXY) fell to about 96.3 points, i.e. to the bottom limit of the last month's quotation, although on Friday it reached 1.5-year highs. However, this is still a limited fluctuation range, especially in the case of the EUR/USD pair.

The drops on the markets, as well as the slight weakening of the dollar, is caused, by fears of trade negotiations between China and the USA, anxiety about the slowdown in global economic growth and, finally, by poor pre-Christmas sales of some large corporations. It should not be forgotten that shares (in the USA and in Europe) record such low levels that some funds have to close down their positions, which only deepens their declines. Although the current depreciation in the USA and Europe seems to be somewhat exaggerated, the Federal Reserve (Fed) is still another part of the picture.

The Ifo index of German business sentiment, which fell to its lowest level since August 2016 in December and which is more or less in line with sentiment in the stock market (the main German Dax index is at its lowest levels at the end of 2016), has also had a slight impact on the euro today. According to Inf data, only the sentiment in the German construction sector remained high, while industry, services and trade recorded further declines. However, the Ifo publication was ignored today, as the markets await for the publications planned for Wednesday and the press conference of the Federal Reserve.

On Wednesday, the Fed will raise interest rates by 0.25 percentage points. This triggers market concerns, especially if it is a dovish increase in interest rates. The higher cost of credit may be accompanied by slightly weaker projections for the US economy in the context of GDP. In the current situation, the implementation of such a scenario could initially even weaken the dollar. However, it is likely to remain on an upward path in the longer term. The economic outlook remains much better than in most developed countries and the other major central banks are now far from tightening monetary policy.

Zloty still stable

Changes in the zloty's valuation remain limited. Low oil prices will support the zloty, even with a potential dollar appreciation on Wednesday. In addition, today the Polish Central Statistical Office (GUS) published data on wages in the enterprise sector, which surprised positively. The average wage growth pace in November was 7.7% per year, which is only 0.1 percentage point below the April growth, which was also the highest in over 6 years. The data increases the probability of a slightly higher inflation rate when wage pressure will start to exert more inflationary pressure in Poland, which should support the zloty.

The calendar for the rest of the day is practically empty, so we should not see any major fluctuations in the zloty today. The current euro exchange rate fluctuates between 4.28 and 4.29 and will not change much today. The same cannot be said for Wednesday when after the publication of the statement and macroeconomic projections of the Federal Reserve, as well as during the press conference, we can expect significant fluctuations in the currency market, in particular, the value of the dollar.