Zloty still good condition (Afternoon analysis 8.11.2018)

The decrease in EUR/USD quotations to around 1.14 and the dovish MPC statement from yesterday suggesting no prospects for higher interest rates in the next two years does not stop the zloty from keeping its last profits.

EUR/PLN again below 4.29

After yesterday's dollar weakening and the rise in the main pair's quotations (EUR/USD), today's quotations have remained closer to the 1.14 limit. Publications about the single currency area which are slightly worse than expected may prevent a greater euro appreciation. In its forecasts, the European Commission raised the projection of Italy's public finance deficit and debt service costs for the coming years. The data on Germany's foreign trade in goods was also not impressive. The surplus was 17.6 billion EUR, 0.4 billion below expectations. On a monthly basis, exports and imports decreased (by 0.8% and 0.4%, respectively), even though they were expected to increase.

In contrast, the labour market data came as a positive surprise. The number of insured unemployment in the US fell to the lowest level since mid-1973 last week. Although this is rather secondary data in terms of its impact on the dollar and is a continuation of a trend that has been going on for over 9 years, the number of insured unemployment turned out to be 12,000 lower than expected and amounted to 1,623 million. The impact of this publication on dollar quotations was limited, but this is another signal from the USA about the very good condition of the labour market there.

This, too, will probably be emphasised in the Federal Reserve's evening statement published at 8:00 p.m. Changes in interest rates are not expected, nor will there be new inflation or GDP projections or a press conference. It is therefore likely to remain unchanged. However, given the recent better than expected economic data, a change in even one word, which could suggest faster economic growth or future inflation than expected, could clearly strengthen the dollar.

However, this is a less realistic scenario and the EUR/USD quotations are likely to move around the 1.14 level. This should also maintain a good condition of the Polish currency. The EUR/PLN exchange rate fell below the 4.29 level today, i.e. to the bottom limit of yesterday's quotations. A stable EUR/USD exchange rate should support the zloty later in the day. In a broader perspective, however, the zloty will most likely depreciate in relation to the basic currencies. Yesterday's MPC conference, despite raising inflation forecasts, may be considered as dovish. The Council is unlikely to raise interest rates for the next two years, or perhaps even longer.

Tomorrow's preview

Thursday may be an important day for the pound in terms of macroeconomic publications. At 10:30 a.m., the Office for National Statistics (ONS) will present a series of macroeconomic data on the British economy. We will see preliminary data on the GDP growth rate in Q3, which according to the median of market estimates should amount to 1.5% per year, 0.6% per quarter and 0.1% per month.

On the other hand, industrial production growth is likely to fall from 1.3% year-on-year in August to 0.4% in October. The ONS will also publish international trade data for September, for which the market consensus assumes a slight (50 million GBP) increase in the deficit to 11.25 billion GBP.

Despite the still relatively strong dollar, the pound's value in relation to the US currency remains above 1.30, at its highest level since mid-October. This is primarily the result of slightly more optimism when it comes to the Brexit agreements. This will continue to be the most important factor determining the pound's valuation in the near future. However, given the economic nature of tomorrow's data, significant fluctuations can be expected around the publication time. With the recent pound appreciation, the downward potential for worse than expected readings could be greater than the upward potential.