Zloty depreciates (Daily analysis 19.10.2018)

The dollar appreciates, EUR/USD approaches the 1.14 boundary. The Polish currency receives practically no positive impulses. Retail sales in Poland also fail in September.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

Long awaited dollar appreciation

Hawkish minutes from the last Fed meeting published on Wednesday evening caused the appreciation of the dollar, but it has been relatively limited. Since yesterday afternoon, an increased upward trend on the dollar has been observed. The quotations of the main currency pair, EUR/USD, have already fallen to around 1.143 in the morning, the lowest level in two months.

The aforementioned opportunity for higher than expected interest rates in the USA in the next few years was only one of several factors influencing dollar growth. This also resulted in a worsening of sentiment on the market, with the main indexes in the US losing between 1.3% and 2%. We also observed renewed supply pressure on Italian assets. The EU criticised the budget plan which the Italian government submitted (due to too high spending and, as a result, too high a deficit). Italy's main market index of the 40 largest companies fell only today by more than 1.5%, and 10-year bond yields jumped to their highest level in about five years (3.78%).

At the same time, the pound's weakening was observed in the global market. At the summit in Brussels, European leaders could not understand the Brexit idea presented by UK Prime Minister Theresa May. Sometimes literally, according to Bloomberg, the German Chancellor did not understand what May was all about and was to ask the EU's chief negotiator Michel Barnier to explain it.

Some European leaders have said that the UK government itself does not know what it wants. Such uncertainty and a higher probability that the talks will fail cannot be positive for the pound. On the other hand, it should be pointed out that the summit did not end in a complete failure. The previously known proposal to extend the 21-month stay of the UK in the EU after the actual Brexit to further clarify the details of the agreement met with the approval of Barnier and the negotiations are due to continue in the coming weeks. However, this increases the pound's vulnerability to dramatic changes concerning media reports on the progress of negotiations.

The dollar appreciation and the worsening of the global sentiment also weakened the zloty. The EUR/PLN exchange rate exceeded 4.31 yesterday evening. This morning it oscillated between 4.30 and 4.31. In turn, the USD/PLN pair reached almost 3.77 and the level of 3.80, which was observed for the last time in mid-August, is approaching at a fast pace. Especially that macroeconomic data from the Polish economy has been failing since the beginning of the week. The increase in the average wage level, employment, industrial production or core inflation - in each case it turned out to be lower than expected. Retail sales data published today by the Polish Central Statistical Office (GUS) in September was no different. Sales increased in September by 5.6% per year (at current prices) - as much as 2 percentage points below expectations and 3.4 percentage points less than a month earlier. This is at the same time the lowest growth pace since April and the lowest in real terms since 2016. Taking into account the external situation and internal factors, it is hard to expect that the zloty will be able to strengthen in the nearest future. It will most likely remain under supply pressure, which may quickly lead to exceeding 4.33 for EUR/PLN and 3.80 for USD/PLN.