Weaker zloty (Daily analysis 08.02.2018)

Polish currency deteriorated due to the global situation after a dovish message from the MPC. Moreover, it is weakened by the expensive dollar and the worsening sentiment on the market. Will the Bank of England weaken the pound a little?

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

• 1:00 p.m.: Bank of England decision on monetary policy and publication of inflation forecasts,
• 2:30 p.m.: Department of Labor data on initial jobless claims (estimates: 236k; previously 230k).

Zloty depreciated due to stronger dollar

Yesterday after 4.00 p.m., Monetary Policy Council's press conference started after a two-day meeting. In line with expectations, the decision has been made to leave interest rates unchanged. Despite the hawkish group of MPC (prof. Osiatyński and Prof. Hardt took part in it), the tone was rather dovish. Currently, the MPC is unlikely to raise interest rates until the end of this year, and perhaps it will even be extended to 2019.

Although a mild message was expected, it was relatively negative information for the zloty. Yesterday, the market observed clear dollar appreciation, which continued this morning. Its appreciation is often associated with weakening of the whole zloty basket. Noted in the morning, sentiment on the market also deteriorated. Main European indexes lost up to 1% before midday.

As a result, the zloty clearly lost in relation to the main currencies. The euro's quotations increased to around 4.175 PLN, which is the most in two weeks. This is similar to the dollar, which increased above 3.41 PLN (0.11 PLN above the last few years lows) today.

If these three factors (dovish MPC message, a stronger dollar, worse sentiment in the market) do not reverse, they may cause the zloty to weaken later in the day. Especially if the dollar continues its growth. Although there are no planned events today that could have a significant impact on the US currency quotations, the data from the US Department of Labor may give the market an argument in favour of continuing its appreciation.

At 2.30 p.m., weekly data on initial jobless claims will be published. In the previous three weeks, the data positively surprised as the number of jobless claims turned out to be lower than market expectations, and three weeks ago it reached even 44-year lows (216k). The median of expectations indicates a small increase of 6k to 236k. If the data on claims was better than expected for the fourth week in a row, the dollar could continue its growth path, which in turn could put further pressure on the zloty.

The zloty may be particularly sensitive to the current situation, as it has been appreciating in recent months. Deterioration of the sentiment towards the zloty may expose it to a relatively large loss, especially in relation to the dollar or the franc.

Important day for franc

After a two-day meeting, today the BoE decisions regarding the monetary policy will be announced. Although interest rates and monthly bond purchases will not change, the distribution of voting may be important as any vote for an increase in interest rates could give a positive impulse to the pound's quotes.

However, chances for such a scenario seem to be limited. Mostly due to growing concerns connected with the Brexit process and the relatively weaker condition of the British economy in recent months, which is presented by PMI indexes of the industrial and service sectors. Along with releasing the decision, the Bank of England will publish new inflation projections.