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Zloty depreciates (Afternoon analysis 11.02.2019)

11 Feb 2019 17:24|Bartosz Grejner

Worse than expected data from the British economy seriously weakens European currencies - the euro, the pound and the zloty. Despite the spectre of a partial government shutdown, uncertainty surrounding monetary policy and trade tensions, the dollar is clearly appreciating. The EUR/USD fell to its lowest level in two months in the afternoon.

Dollar benefits from Europe's problems

Recently there has been little good news from the economies of European countries. Today's macroeconomic data from the UK is also in line with this trend. Almost all of the most important indexes published today fell well below market expectations, including GDP growth pace, industrial production and foreign trade balance.

As a result, a strong depreciation of not only the pound but also the euro was observed. There is concern that a much faster than expected economic slowdown will affect more and more economies.

After the New York trading session started, the EUR/USD pair fell to around 1.1275 in the afternoon, the lowest level since mid-December, and the GBP/USD depreciated to around 1.2960. In the latter case, despite a significant fall, the value of the British currency is supported by positive expectations regarding the Brexit (an agreement with the EU or prolonging the exit from the EU).

Concerns over the economic growth in the region affect the zloty more and more. The USD/PLN exchange rate rose to approx. 3.8350 today. This is the upper limit of the USD/PLN exchange rate from the last year and a half and a further decrease in EUR/USD may only contribute to the continuation of the upward trend towards 4.00 PLN, which currently seems to be the baseline scenario. Despite the global decline in the pound, the GBP/PLN exchange rate increased to nearly 4.94 PLN today, showing the weakness of the whole zloty basket. Relatively good macroeconomic data from Poland supported the zloty. However, if the upcoming publications turn out to be also below expectations, reflecting the wider European trend, the supply pressure on the zloty may increase, and the EUR/PLN may exceed the 4.35 level in the coming months. Today it reached the level of approx. 4.3260.

Tomorrow's preview

The calendar of important macroeconomic publications is limited. Probably the most important events may be the speeches of central bankers. Mark Carney, the Head of the Bank of England, will give a speech in London at 2:00 pm. The topic will be the global economy and risks to its prospects, as well as tensions in international trade. Today's much worse than expected data from the British economy and even weaker data from the eurozone reduce the likelihood that Carney's statements will have a positive impact on the pound's quotations. It is more likely that when negative information comes in, Carney's statement will weaken the pound.

Jerome Powell, Chairman of the US Federal Reserve, will have a speech at 6:45 p.m. The topic will be economic development in rural areas affected by high levels of poverty, so it is unlikely that there will be something that will have a significant impact on currencies. The speech by Loretta Mester, Chairman of the Cleveland Federal Reserve, may attract more attention. It will deal with the prospects for the economy and monetary policy, which are burning issues in the context of the dollar valuation. Therefore, the fluctuation range of the dollar may increase.

11 Feb 2019 17:24|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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