Zloty under pressure (Afternoon analysis 15.03.2018)

Macroeconomic data from the US supported a slightly stronger dollar today. The Polish currency was weaker after the latest inflation report pointed a much weaker than expected price change – the probability of interest rate hikes in Poland went down.

The dollar doesn’t help

Although the day on the currency market was relatively calm, the zloty had yet another day under pressure. A lowered probability of interest rate hikes negatively impact the Polish currency, after the last meeting of the Polish Monetary Policy Committee proved to be dovish. Additionally, worse-than-expected consumer inflation data were published today. Prices grew 1.4% year-on-year on average, while the market expected a reading 0.4 percentage points higher. This was also the lowest level of inflation since December 2016.

It was no wonder that the zloty was in a weak condition. The euro cost today close to 4.22 PLN, which constituted the upper boundary of the last three weeks of trading, while the pound rose to the highest level in a month (4.76 PLN). The Polish currency lost some 0.5% in relation to the dollar, however, the 3.41 PLN level was in the range of last week’s trading.

A relatively strong dollar today didn’t help the zloty as well. The US currency was supported today by solid macroeconomic data coming from the Department of Labor. The weekly report showed initial jobless claims fall to 226k, below both expectations and last week’s number (230k). Also, insured unemployment decreased to 1.879 million people, while market expectations were 21k higher.

As a result, the main currency pair (EUR/USD) traded close to 1.232 (3 p.m. CET). This was approx. 0.3% lower than yesterday’s level. If there are no significant changes in the US stock market in the afternoon, the zloty should stabilize around current levels (there are also no major macroeconomic publications planned for today).

Tomorrow’s preview

At 10 a.m. the Central Statistical Office will publish the change in employment and average wages in the Polish corporate sector. The market should focus on the latter, as it could give hints to what pressure wages exert on inflation. The average wage grew in January by 7.3% on a yearly basis – this is also the consensus for February. Taking into account that the zloty has been particularly sensitive to published macroeconomic data, an increase below market expectations (around 6%) could negatively impact the Polish currency.

Three hours later, the National Bank of Poland will share yet another batch of macroeconomic data from the Polish economy: core inflation in February and current account in January. Today’s headline inflation could suggest a core index below 1%. On the other hand, the deficit in the current account unexpectedly rose to 1.15 billion euro in December and a significant surplus (approx. 1.7 billion euro) is expected. Should the aforementioned data prove to be relatively weak, the Polish currency could see additional downward pressure.