Zloty may weaken (Afternoon analysis 9.11.2018)

The US currency remains in good condition, maintaining most of the profits achieved yesterday evening. The zloty weakened slightly today but remains relatively strong.

EUR/USD still under 1.14

The dollar continued its appreciation after Thursday's publication of the statement from the meeting of the monetary committee of the Federal Reserve. Although there was no data suggesting an increase in the pace of monetary tightening in the USA, the lack of dovish signals was enough to significantly increase the yields of US Treasury bonds, which were burdened on the global equity market (they lost the main Asian as well as European indexes). The EUR/USD quotations fell to around 1.133, to their lowest level since November 1st.

At 2:30 p.m., the Bureau of Labour Statistics (BLS) published data on producer inflation in the USA in October. It increased by 2.9% per year, excluding energy and food prices (the most important core index) by 2.6%. In the first case, it was 0.4 points higher than the market consensus, and in the second one by 0.3 percentage points higher than the market consensus. In terms of its impact on the dollar's quotations, this is rather secondary data, but may prevent the dollar from returning the profit earned yesterday. In a broader perspective, the dollar is likely to benefit, but yesterday's reaction to the Fed's statement seems to be somewhat exaggerated (no new macro projections, no press conference).

The global dollar appreciation observed, however, does not have as negative an impact on the zloty as one would expect. The EUR/PLN quotations rose to 4.29 today (they fell below 4.28 yesterday evening), but it is still about 1.4% since the high of November 1st (nearly 4.35). Taking into account relatively weak macroeconomic data from Poland, the current zloty valuation in relation to basic currencies may even be slightly too high. This may cause the Polish currency to slowly return some of its recent profits, and the EUR/PLN could return to around 4.30. Next week, when important macroeconomic data from Poland, the eurozone and the USA will be published, may turn out to be important in this respect.

Next week's preview

On Tuesday, important data in the context of pound quotations will be announced. Although the biggest impact on the British currency continues to be related to Brexit, data published by the Bureau for National Statistics on the average wage level of Britons can be an important indication of its impact on inflation. Its higher than expected growth (currently 3.0% y/y) may suggest the need for a faster monetary tightening, which may have a positive impact on the pound.

Wednesday will be rich in important economic publications, which may translate into increased volatility that day. Even before midday the preliminary data on growth rates in the Czech Republic, Germany and Poland will be available. Moreover, another reading in the eurozone and the level of industrial production in this region will be published. If the fears of a slowdown faster than expected in the eurozone and Poland materialise, we can observe increased supply pressure on the euro and the zloty.

On the same day, data on consumer inflation in the UK and the USA will also be available. In both cases, we can expect significant fluctuations in the pound and dollar around these publications. If core inflation in the USA turns out to be higher than expected (2.2% y/y), the yields of Treasury bonds and the dollar may increase significantly, which may weaken the euro and the currencies of emerging countries, including the zloty.