Zloty and euro pare the losses (Afternoon analysis 12.02.2019)

Prime Minister Theresa May's speech in the British Parliament changes little in the context of the Brexit. The zloty remains weak, but in relation to the dollar, there was a slight decrease - to about 3.83 level. The disturbingly high deficit in Poland's foreign trade.

Rebound on the euro. No solid piece of news from the UK

The EUR/USD exchange rate has pared the morning losses and moved from around 1.1260 to 1.1300. In general, it is logical that the euro strengthens. The lower risk of an expansion of the US-China trade conflict creates an opportunity for Germany or Italy to return to the growth path.

On the other hand, the economic situation in the eurozone is also under pressure from local factors, especially those related to politics. The Brexit issue, which has not come close to resolution after the meeting of the British House of Commons today, does not help either.

Only one and a half months left to the Brexit. The EU does not want to renegotiate the initial agreement (especially the backstop) and Prime Minister Theresa May's cabinet, does not intend to give way in terms of forcing its plan. May also does not want to give more power to the parliament to try to vote for its own solution. Moreover, the Prime Minister does not intend to resign or call new elections to the House of Commons.

Another key moment for the Brexit will take place at the end of February, when the Parliament will meet again on this issue and, in the absence of a modified agreement, there is a chance that the House of Commons will take the lead in preparing a plan that will be accepted by London and Brussels. If this fails, the next deadline may cause serious fear among investors. The EU summit will take place on March 21st. If there is no reasonable solution to the current deadlock, the pound could start to depreciate, even if an agreement could finally be reached just before March 29th.

The zloty still weak but the dollar stopped strengthening

The dollar started to depreciate on the global market, which allowed the USD/PLN pair to fall from around 3.8450 to 3.83 PLN. However, the euro is still quoted in the range of 4.32-4.33, which shows the overall weakness of the zloty.

Among the worrying elements, it is worth noting the foreign trade data published by the Polish Central Statistical Office yesterday (tomorrow there will be analogous data from the National Bank of Poland). In December, there was a huge deficit on the commodities trading account, amounting to about 2 billion EUR. This result has not been observed for 10 years. Imports grew in December in line with the trend existing since the beginning of 2018, but exports clearly failed. A year ago it was similar, but the deficit was about half as small. If December was the beginning of a clear increase in Poland's trade deficit, then it could even have a negative impact on the zloty by being a local factor. For the time being, however, it seems that it is too early to draw such a pessimistic conclusion.