Zloty the strongest against euro since 2018 (Daily analysis 14.01.2020)

Marked falls in the EUR/CHF rate. The franc is the strongest against the euro since April 2017. The improving condition of the zloty causes the EUR/PLN exchange rate to fall to about 4.20, which indicates that the euro's exchange rate is the lowest for a year and a half.

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

• 2:30 p.m.: Core inflation in the USA in December (estimates: 2.3% year-on-year).

Positive sentiment dominates on the market

The Polish currency has been gradually but clearly appreciating in the last month. The EUR/PLN exchange rate was closed at around 4.23-4.25 on the last (trading) days, but this was the lower limit since April 2018. Today, the zloty has been strengthening since the morning. Even before midday, the EUR/PLN exchange rate crossed the 4.23 PLN limit, falling even to approx. 4.20 PLN, which is the lowest level since April 2018. As a result, the zloty basket strengthened in relation to the main currencies, including the dollar and the pound. However, there was one exception: the CHF/PLN pair, which grew (by approx. 0.3%) until midday, although the quotations in the range of approx. 3.91-3.93 do not differ from the fluctuations observed in the past few days.

Today's strengthening of the zloty, especially against the euro, is a result of, i. a. a strong depreciation of the euro in relation to the franc. The EUR/CHF exchange rate has been falling for a month now, and today, with a decrease to about 1.0766, it reached its lowest level since April 2017. However, this is not the only factor supporting the zloty. The broader market is still dominated by positive sentiment (again new records on US exchanges), and data from Poland do not fail. Although the National Bank of Poland continues to indicate that interest rates will remain unchanged, much higher than expected inflation and higher than expected trade surplus (published yesterday) also support the zloty in relation to the main currencies.

What will data on inflation in the USA show?

Apart from the globally appreciating franc (approx. 0.2-0.4 % to the dollar and the euro), changes in the basic currencies remained limited. The EUR/USD exchange rate remains just above 1.11, and the GBP/USD pair fluctuates around 1.30. Market participants await data on consumer inflation (CPI) in the US in December. This is not the most important measure of inflation for the Federal Reserve (PCE), but it may indicate what price trends are occurring in the economy.

Inflation in the US is still subdued, and this is also what economists expect later in the year. Therefore, rate highs in the USA are not expected by the end of the year, and the rates cuts have already been priced in by the market. Now the Federal Reserve will also look more closely at inflation. Its readings may, therefore, contribute to increased market volatility. If the data indicate an increase in core inflation (without energy and food prices), the dollar could be under demand pressure.