The dollar remains weak (Afternoon analysis 20.12.2018)

The US currency pared some of the losses incurred till midday but is still in a weaker condition. Tomorrow, GDP data for the US will be available, which could potentially strengthen the dollar. The zloty is in good condition.

The zloty benefits from the weaker dollar

Thursday's quotations on the foreign exchange market were mainly influenced by yesterday's events in the USA, i.e. the Federal Reserve's decision to raise interest rates. Although the dollar was under sales pressure since the beginning of the session on the European market, the equity market suffered much more because of Wednesday's events. The main European indexes continued yesterday's drops, their US equivalents also opened below, setting new multi-month lows.

Today's dollar depreciation was stopped in the afternoon hours. The EUR/USD quotations reached the 1.15 boundary before midday but fell to about 1.1440 just after the start of the New York session. The data on initial jobless claims submitted last week may have been slight support. Their number was 214,000, so 8,000 more than a week earlier, but 5,000 less than market estimates. However, these are still close to the lowest levels since 1969. Although the US currency is weak today, if we look at the euro-dollar quotations more broadly, they are within the range observed in the last two months.

The comparatively worse dollar situation, especially in relation to the euro, is good news for the zloty. Currently, the zloty is stronger in relation to the basic currencies and if we do not observe a significant strengthening of the dollar in the afternoon, the Polish currency should oscillate around current levels. Today, the National Bank of Poland (NBP) published a record of talks (minutes) from the last meeting of the Monetary Policy Council on December 5th. The publication was neutral for the zloty. The Council still expects interest rates to stabilize in the following quarters. The Monetary Policy Council is likely to wait for what the European Central Bank (ECB) will do, and if the data does not show a rapid increase of inflation above expectations, higher rates should not be expected before 2020.

Tomorrow's preview

At 8:00 a.m., GfK will present a consumer climate index for German consumers. The business confidence index published yesterday disappointed expectations, and declines in growth were recorded in all sectors except construction. The market reaction to the data was limited, but a greater than expected deterioration in consumer sentiment may also indicate that Europe's largest economy is entering a new year in a worse condition than previously expected. This may weaken the euro somewhat, especially in the context of recent growths we have seen.

At 10:00 a.m., the Polish Central Statistical Office (GUS) will publish data on retail sales in November. The median of market expectations indicates an increase by 7.9% compared to November last year. Another set of positive data, after better than expected information on industrial production, may additionally support the zloty, especially in the context of a preferential macroeconomic situation (low oil prices, relatively weak dollar).

The Office for National Statistics (ONS) will provide data on the British economy's growth pace in Q3. This is already the third reading, therefore the probability of deviation from the two previous ones is limited (1.5% year-on-year, 0.6% quarter-on-quarter). Today, the Bank of England has lowered its GDP growth forecasts for Q4 and Q1 next year. A weaker reading of the final GDP for Q3 could weaken the pound.

At 2:30 p.m., the final reading of the US GDP growth pace in Q3 of this year will be published. Earlier readings indicated that the world's largest economy grew at a pace of 3.5% per year. Given the market reactions after Wednesday's statement of the Federal Reserve, this may be an important reading for the dollar if it deviates from the consensus. An increase of more than 3.5% may calm the market a little, which will strengthen both the shares and the dollar.