Zloty benefits from weaker dollar (Afternoon analysis 28.02.2019)

GDP growth in the USA is in line with expectations - the dollar depreciated only slightly on Thursday. However, its somewhat weaker condition over the last few days has clearly supported the zloty, which today appreciates in relation to basic currencies.

Most of the increases for the zloty behind us?

The US GDP data for Q4, although solid, were not particularly surprising. In the last three months of 2018, the US economy grew at a pace of 2.6% year-on-year, in line with expectations. The dollar strengthened slightly after the publication, but these changes were limited. The EUR/USD quotations, after reaching about 1.1420 which was also the highest level since February 6th, fell below the 1.14 boundary in the afternoon, close to Wednesday's closing level.

The gradual increase in the EUR/USD exchange rate observed in recent days has had a positive impact on the zloty. The zloty basket appreciated in the last three days. The EUR/PLN quotations fell near 4.30 today, i.e. the level we observed the last time 20 days ago. The USD/PLN pair, similarly to the EUR/USD, decreased to the lowest exchange rate since February 6th, i.e. approx. 3.77.

Although the dollar may still weaken globally, which could further support the zloty, the zloty's possible drop in value seems to be limited. Even with the best market situation and an inflow of good information, the difference between the US economies and the eurozone is so large that it should support the dollar's appreciation in the long run and, in the context of the coming weeks, at least diminish the scale of its decline. This suggests that most of the depreciation of the euro or the franc against the dollar has probably already been achieved. The situation is slightly different for the pound - the GBP/PLN exchange rate rose above the 5.00 level due to the optimism relating to the Brexit (the decrease in the risk of chaotic leaving the EU) and remains above that level. However, the upcoming votes in the British Parliament and negotiations with the EU will contribute to significant fluctuations in its valuation, most likely still in the coming months, although the underlying trend should remain upward.

Tomorrow's preview

At 9:00 a.m. IHS Markit will publish PMI data for the Polish manufacturing sector in February. The median of market expectations suggests a minimal increase of 0.1 points to 48.3 points. This is still almost 5-year lows, and at the same time, it signals a further decrease in activity in the sector. The zloty basket strengthened somewhat (except for the GBP/PLN pair) in recent days, and a weaker than expected PMI index reading could reverse some of the profits, which more or less result from the relative weakness of the dollar.

In the afternoon, macroeconomic data from the USA will be published. At 2:30 p.m., the Bureau for Economic Analysis (BEA) will present data on PCE inflation in the USA for December. Although these are rather "old" data, it is the type of inflation that the Federal Reserve (Fed) takes into account in its macroeconomic projections. A deviation of the core index (excluding energy and food prices) from the 1.9% year-on-year consensus may significantly increase the dollar's volatility, modifying slightly the probability of rate hikes this year in the USA. One and a half hours later, ISM will publish the PMI activity rate in the US industrial sector in February. The market expectations indicate a decline from 56.6 to 55.5 points. Taking into account the current strong dependence of the Fed in further monetary policy on incoming data, the publication of the ISM may have a relatively large impact on the dollar, especially if it is beyond the range of approx. 54.3-56.5 points.