Weak data from eurozone and US (Afternoon analysis 12.09.2018)

There is still no information on the customs duties. Industrial production in the eurozone and US producer inflation are well below expectations. The zloty's quotations in a limited range of fluctuations, but it may increase significantly tomorrow.

EUR/USD still close 1.16

Wednesday's session was relatively calm on the currency market. The market is still awaiting a message from the US on additional duties on Chinese imports. During the day, however, weak data from both the euro area and the USA appeared. Industrial production in the single currency area fell by 0.1% a year in July (an increase of 1% was expected). This was the worst result in two years and fits well with the argument that the economic growth rate in the eurozone has slowed down.

The Bureau of Labour Statistics (BLS) in the USA presented data on producer inflation (PPI) in August, which also failed to meet market expectations. The price growth pace was 2.8% per year, 0.4 percentage points lower than the consensus. The more significant inflation rate excluding food energy prices amounted to 2.3% year on year, although it was expected to remain at 2.7%. It was also the lowest level since April. In the case of the dollar, however, this is rather secondary data.

The main currency pair, EUR/USD, remained around 1.16. Tomorrow we can probably expect a significant increase in volatility unless there is new information on the Chinese-US trade issue.

No major changes in the EUR/USD usually means also a stable zloty. It was no different today - the Polish currency quotations in relation to the main currencies remained around yesterday's closing levels. If we do not observe significant changes in the euro-dollar valuation, as well as in the sentiment on the share market in the USA, the zloty should oscillate around current levels until the end of the day.

Tomorrow's preview

Thursday may be the most interesting day this week for the currency market. At 1:00 p.m. the Bank of England's monetary policy decisions will be announced. While no changes in the interest rate level or in the bond buy-back program are expected, the distribution of votes or the announcement may already surprise a little. After the previous meeting, interest rates were raised quite unexpectedly unanimously (7 out of 9 votes in favour were expected). The median of market expectations indicates that 9 bank members will vote in favour of keeping the rates this time - a breach of one of the members may be positive for the pound. Since the last Monetary Committee meeting, the likelihood of a "hard" Brexit has decreased. Central bankers' fears may, therefore, be somewhat lower, and this increases the chances of a more hawkish message, which may also strengthen the British currency.

At 1:45 p.m., the European Central Bank (ECB) will make a similar decision. Again, no changes are expected. The press conference of Mario Draghi, the President of the ECB, which will start at 2:30 p.m., may be more important. There are currently a number of factors, including the eurozone itself (Italy, Greece), Turkey and other emerging countries, whose economies (as well as currencies) are rapidly collapsing. These factors may weaken the economic growth pace of the euro area, as well as slowing down the inflation rate. Addressing these problems by Draghi may reduce the probability of the ECB raising interest rates and weaken the euro. It should be remembered that the dollar is currently weakened mainly by a political factor - from a fundamental point of view, it should appreciate. The situation of monetary policy in the eurozone is radically different from that in the USA, hence the message from Draghi may strongly strengthen the dollar and at the same time depreciate the euro, which would also be negative for the zloty.

The market will also receive other very important data at 2:30 p.m. The Bureau of Economic Analysis (BEA) in the USA will publish August consumer production Index (CPI) in the USA. The most important index will be core inflation, i.e. excluding relatively volatile energy and food prices. In July, it rose to 2.4 % per year - the highest level in nearly a decade. The market consensus assumes that this level will be maintained. It seems that the dollar now needs a stimulus for growth. Such an impulse could be the conference of the head of the ECB or better than expected inflation data.