US inflation in line with expectations (Afternoon analysis 30.08.2018)

The US PCE inflation data is as expected, but the jobless claims once again surprise positively. The EUR/USD pair is around 1.17, but there may be downward pressure. The zloty is stable, although the depreciation is not excluded.

EUR/PLN close to 4.30

The market's expected PCE inflation reading in July did not come as a surprise. Today's publication by the Federal Reserve shows that the inflation rate is in line with the market consensus on both an annual and monthly basis (2.0% and 0.2% respectively). This did not trigger a major dollar movement immediately after publication but may strengthen the argument for a gradual return to the upward trend. Especially in the context of the latest better than expected GDP growth pace data or today's labour market data.

Although the number of initial jobless claims in the US rose to 213k last week (from 210k), it was 1k lower than the consensus for the fifth consecutive week. The number of insured unemployment also fell to 1,708 million, 17k below expectations and 20k below the level of the previous week.

Worse than expected data from the eurozone may also support the dollar and thus contribute to a fall in the EUR/USD quotations. The European Commission's eurozone business and consumer confidence index fell to 11.6 pts (0.3 pts below expectations), to its lowest level in 13 months.

Around 3:00 p.m., the EUR/USD exchange rate fluctuated at 1.17, although there are many indications that we can observe a strengthening of the dollar in the following hours. If this were combined with a response to recent increases on the US market, pressure on emerging country (EM) currencies could increase, including that on the zloty.

The Polish currency remained in good shape, appreciating even to the majority of EM currencies. Quotations in relation to the main currencies remained close to yesterday's closing levels. However, if the two aforementioned factors occur (strengthening of the dollar, a decrease of the main indexes in the USA), also the Polish currency may not resist the depreciation. In such a scenario, the EUR/PLN could increase above 4.30, and the USD/PLN above 3.70.

Tomorrow's preview

At 10:00 a.m., the Polish Central Statistical Office (GUS) will publish August's preliminary data on consumer inflation in Poland. The median of market expectations indicates that the average price growth pace is maintained at the 2.0% year-on-year level. At the same time, GUS will also present data on the GDP growth pace in Poland in the Q2. This will be the second GDP reading and the market consensus assumes its growth by 5.1% annually, as in the preliminary reading. These publications are likely to have a limited impact on the zloty's quotations. To a greater extent, this is due to external factors. However, in the case of lower than expected data, the zloty may depreciate, in the case of a worsening sentiment on the global stock market and/or appreciation of the dollar.

At 11.00 a.m., Eurostat will publish corresponding inflation data for the eurozone. It will include a more significant inflation core index (excluding the most volatile prices). Market expectations assume a core inflation rate at 1.1% year-on-year level, similar to July. The 0.1 percentage point deviation may cause an increase in the volatility of the euro exchange rate, especially in the context of the recent significant movements on the EUR/USD or the EUR/GBP.