Zloty in the red (Afternoon analysis 06.02.2018)

The US foreign trade deficit increased in December to its highest level since the end of 2008. The dollar appreciated slightly - the EUR/USD pair remained at the lowest level in three weeks. The worse sentiment in the market caused some losses on the zloty, but only minor ones.

Zloty under market pressure

On Tuesday, the continuation of declines on European markets was observed. The main indexes lost almost 3%. Moreover, Polish WIG20 was depreciated by over 3% around 3.00 p.m.. As a result, these decreases translated into the zloty going into the red and losing in relation to yesterday's close. The appreciation of the dollar could also have contributed to this, which, although was not significant, the dollar index (DXY) grew by about 0.2%, weakened the demand for emerging market currencies, including the Polish currency.

From a fundamental point of view, the dollar should increase in value. The median of expectations assumes three rate hikes this year, but after Friday's better than expected data on wages growth pace in the US, the probability of even four has also increased.

Today, the Bureau of Economic Analysis (BEA) published data on the foreign trade deficit in US goods in December. It rose to 53.1 billion USD, by 1 billion USD more than expected and to its high since October 2008. November's level was also revised upward by 0.35 billion USD. Despite this fact, the main currency pair's quotation, the EUR/USD pair, remained close to daily lows (approx. 1.232) and the BEA publication itself had limited impact on the dollar.

The calendar of scheduled macroeconomic events for the following hours is practically empty, therefore, zloty outcome may depend on changes in market sentiment. If during the afternoon hours on the US market a further deterioration of moods is observed, the pressure on the zloty may increase. On the other hand, the recovery of the US market may contribute to an increase in demand and zloty valuation.

Just before the time the US session began, the EUR/PLN increased to 4.17 PLN, which is its upper-level of the last 20 days. The value of the dollar and franc expressed in Polish currency may be particularly sensitive to changes in market sentiment. Taking into account the significant price fall of these pairs in recent months, they may be most vulnerable to potential rebound, if market sentiment weakens together with dollar appreciation.

Tomorrow's preview

For the zloty, the most important event of tomorrow will be the statement and the press conference after the MPC two-day meeting. Unless a change in interest rates is expected (main reference rate at a 1.5% level), the transfer from the MPC can be significant. Increased wage pressure in the USA, combined with the recent Fed statement, may slightly increase the likelihood of suggesting that interest rates may also increase in Poland before the end of 2018. In particular, high wage pressure is also present in Poland.

However, if the Council continues to remain relatively dovish in its approach to monetary policy, and its President Adam Glapiński suggest increases only at the end of 2019, the zloty may depreciate. Taking into account the currently gradually rising dollar value and negative sentiment on the market, the Polish currency may be under additional pressure.