Zloty is winning (Afternoon analysis 31.01.2019)

Zloty is supported by the much more cautious approach of US monetary authorities to monetary tightening and better than expected GDP data from Poland. The EUR/PLN quotations fell to the lowest level since August 2018.

Surprisingly weak data on jobless claims

After a very dovish message on monetary policy from the FOMC (yesterday evening), the dollar was in a relatively weak condition. The EUR/USD quotations remained around 1.15. The weekly report on initial jobless claims in the USA did not help the dollar either. The number of claims submitted - 253,000, compared to 200,000 a week earlier and market expectations of 215,000 - reached its highest level since September 2017. This is rather secondary data for the dollar, and it's one shot is unlikely to disturb the image of the US labour market, but it may not help the US currency in the context of yesterday's FOMC statement.

On the other hand, data from the eurozone did not impress either today. Italy, which is already burdened with major problems, recorded a worse than expected economic growth pace (GDP growth pace dropped by 0.2% quarter-on-quarter in the Q4). This data is contrasted with the macro data from Poland, which looks like a green island against the other European economies. The zloty was strongly supported by the data on GDP growth, which amounted to 5.1% throughout 2018, and this increased the already positive factor for the zloty in the form of a weaker dollar and lower yields on US Treasury bonds.

Recently, the EUR/PLN quotations have moved in a limited fluctuation range, where 4.30 was a kind of magnetic level. However, the gathering of positive factors for the zloty caused a drop to the 4.26 boundary in the afternoon, i.e. to the lowest level since August 2018. This depicts a certain change in the attitude towards the zloty, which can also be seen in its relation to other basic currencies. As long as macroeconomic data does not negate this, the zloty may remain relatively strong due to the likely better condition of the Polish economy in relation to the one observed in the eurozone.

Tomorrow's preview

In the morning, the IHS Markit will publish the final reading of the PMI indexes of the industrial and services sector in January in the eurozone. Preliminary data was weak, and although the final indexes are not expected to deviate significantly from them, lower levels may weaken the euro slightly. At 9:00 a.m. Markit will also present PMI data for the Polish industrial sector. In December it fell to its lowest level in over 5 years, i.e. 47.6 points. The median of market expectations indicates a slight increase of 0.4 points, which would coincide with the lack of optimism in the PMI indexes of the largest European countries. The Polish economy is in a relatively better situation, and the slowdown is not as profound. The GDP data published today for 2018 turned out to be even slightly above expectations (5.1% against 5.0%). Higher than expected PMI (especially above 50 points) may strengthen the zloty, which is already stronger after the new wave of the dollar weakening.

At 11:00 a.m., Eurostat will publish consumer inflation (CPI) data in January in the eurozone. The market consensus indicates that the baseline CPI is maintained at 1.0% per year. Taking into account the recent negative information from the euro area economies, a drop below this level may have a negative impact on the euro.

Tomorrow's most important publication will be the January report on the US labour market, which will be published by the Department of Labor at 2:30 p.m. The most significant will be the increase in average hourly wages (consensus: +3.2% year-on-year) and changes in the number of employees (consensus: +165k). Given that FOMC's current interest rate decisions will depend on incoming data, tomorrow's report may cause significant movements in the currency market. Recent data from the US labour market surprises positively, which may strengthen the dollar if the data is again better than expected.

At 4:00 p.m., another set of important US data will be published - the PMI for January by ISM. In the previous month, it recorded a significant decrease from 59.3 points to 54.1 points, which was the lowest level in two years. The median of market expectations indicates a slight decrease to 54.0 points. A rebound of the index from ISM around the November level could support the dollar. For the US currency, good labour market and ISM data could be particularly important in the context of FOMC's more cautious approach to monetary policy.