Weaker dollar supports zloty (Afternoon analysis 29.11.2018)

Readings on inflation from the largest economies in the eurozone and the USA failed to meet expectations. Therefore, however, yesterday's events following the speech by the Chairman of the Federal Reserve pose more threats to the dollar than to the euro. The Polish currency benefits from market events.

EUR/USD slightly below 1.14

The effect of yesterday's dovish interpreted statement by Jerome Powell was evident during today's session. The reaction of the market may have been somewhat exaggerated, but in the short term, the dollar may have been slightly weaker at least until Powell clears doubts about views on interest rate increases.

The main currency pair quotations, i.e. the EUR/USD, moved slightly below 1.14 today. No major changes could have been caused by the emergence of mixed macroeconomic data for both currencies. Consumer inflation readings in Spain and Germany disappointed market expectations by 0.3 and 0.1 percentage points respectively (on an annual basis).

Also, the publication of PCE inflation in the US in October was not good. The core index amounted to 1.8% per year, 0.1 percentage point below market consensus. Its September level was also revised downward from 2.0% to 1.9%, as well as personal spending (from an increase of 0.4% to 0.2%) and real consumption (from an increase of 0.3% to 0.1%).

Although the dollar was depreciated due to this publication, unfortunately, this publication is in line with yesterday's dovish interpretation of Powell's statement. In the evening (at 8:00 p.m.), the Federal Reserve will publish minutes from the last monetary session. In the context of yesterday's events, this publication may be important because statements made by the more dovish members of the monetary committee may support the weakening of the dollar. In such a scenario, in the evening we could observe even greater pressure on the dollar.

In turn, this would be a positive scenario for the zloty. The Polish currency is in a relatively good condition, supported by a good internal situation. The EUR/PLN quotations oscillated around 4.29 today, while the USD/PLN and CHF/PLN quotations oscillated around 3.77 - 3.78. A combination of the currently observed good sentiment on the global equity market (lower risk aversion) and further weakening of the dollar could slightly strengthen the zloty.

Tomorrow's preview

At 10:00 a.m., the Polish Central Statistical Office (GUS) will publish data on consumer inflation (CPI) in November, as well as on the GDP growth pace in the Q3. In both cases, these will be subsequent readings, although more detailed. The chances of significant changes in the zloty in relation to the main currencies due to this are limited.

Half an hour later, potentially more relevant data will be published. Eurostat will present preliminary readings of consumer inflation (CPI) in the eurozone. The median of market expectations indicates a decrease in the headline inflation rate from 2.2% to 2.0% per year but maintaining more important core inflation at 1.1%. Today's weaker than expected inflation data from Germany or Spain may suggest that the pace of price growth may slow down more than expected in the single currency area.

This would not be a positive signal for the euro, although under the current circumstances it may not necessarily mean a significant weakening of the euro. The euro profits from the weakened dollar following yesterday's Powell statement, which may indicate fewer interest rate rises next year.