Ebury: US inflation data favors risk currencies, including the zloty

by   CIJ News iDesk III
2023-11-20   20:00

The reading of October inflation in the USA contributed to a significant approximation of the expected by the markets on the date of the first interest rate cuts across the ocean, improving sentiment on risk currencies, including the zloty, analysts Ebury Enrique Diaz-Alvarez, Matthew Ryan, Itsaso Apezteguia and Michał Jóźwiak. The Polish currency is also strengthened by the expectations for the payment of advances under the National Reconstruction Plan.

Below is the comment of Ebury:

The reading of the October US price dynamics was another positive surprise for the Federal Reserve. It has contributed to the significant approximation of the expected by the markets on the first interest rate cuts across the ocean, improving the sentiment towards risk currencies. Combining this with speculations regarding the payment of the so-called advancement under the National Reconstruction Programme (KPO) and a significant upward revision of the reading of Poland’s GDP growth in the second quarter, we receive an environment conducive to the appreciation of the Polish currency.

U.S. inflation was again below expectations, and financial markets celebrated the likely end of interest rate hikes. This has made stocks and bonds around the world experience strong growth. As a result, U.S. Treasury yields fell, and the escape from safe assets to the riskier hit the dollar, which weakened significantly against the remaining major currencies.

It seems that the disinflationary trend has established a good thing around the world, so attention should turn again towards the economy. The most important this week will be the preliminary readings of PMI indicators for business activity in November - for the eurozone and the UK on Thursday (23.11), and for the USA, due to Thanksgiving, on Friday (24.11). Expectations of their level in the Islands and in the common bloc are quite pessimistic. Positive surprises may alleviate concerns about European economies by supporting further appreciation of the euro and the pound. Otherwise, the growth potential of both currencies will be quite limited.


The aforementioned reading of US inflation in October was crucial for last week’s strengthening of the Polish currency. The market’s oversuring the chances of another rise in interest rates across the ocean has significantly supported the risk currencies that include the zloty. In addition to global factors, numerous reports have drawn numerous reports on the potential payment of part of funds from the KPO - an advance to encourage more efficient rule of law changes. Initially, speculation assumed an amount of EUR 500 million, which could be considered marginal, but there is now a rate ten times higher.

Of course, national publications aroused curiosity, but did not play a key role due to the slight discrepancies towards the consensus. October inflation has been largely in line with expectations. The base measure fell to the lowest level since April 2022 (8.0%), and the main measurement was quite insignificant (+0.1 pp. to 6.6%). The most interesting are the GDP data, especially a very significant revision of the second quarter (from -2.2% k/k to 0.3% k/k). This means that lower than expected dynamics level in the third quarter (1.4% k/k) should not be perceived negatively.

The beginning of the week will be quite abundant in the publication of macroeconomic data from the domestic market. We will pay attention to the next October readings, including wage growth, industrial production and PPI (producer inflation). However, the most important will be retail sales, which for the first time in close to a year may be at a positive level per year in real terms. The last months have brought very promising readings and significant increases on a monthly basis - the continuation of this trend would be a very optimistic signal for the Polish economy and currency.

Of course, global factors, including, above all, the November PMI from G3 countries will play a key role in shaping the zloty exchange rate. Better than expected data from the eurozone may bring the strengthening of the single currency, and thus also the zloty.


We have previously pointed out that the economic readings from the euro area are usually delayed, with the inflation worth noting. In the case of hard macroeconomic data, this delay is usually no less than two months, which makes it difficult to determine how much we can trust them. Industrial production in September was very weak - in terms adjusted for the number of working days, it decreased by almost 7% per year. However, investors did not take over the same disappointing data, and the euro did better than most of the other major currencies - the EUR/USD exchange rate for the first time since August is currently at a level exceeding 1.09.

So far, hard data confirms the pessimism emerging from the pre-emptive PMI indicators and it seems likely that the bloc’s economy is shrinking again. If Thursday’s (23.11) PMI readings do not show significant improvement, the euro may find it difficult to continue to be interpreted.


Good information from the October inflation report has led to a 10-year tax bond yield dropping by 20ps. The variable main measure of inflation returned to 3.2%, and the core one fell to 4% for the first time in two years. The escaping also caused an escape from the dollar, as the markets have already ruled out the possibility of further increases in Fed interest rates (which we agree with) and expect their first reduction in May 2024 (which we believe is less likely).

Despite the signs of a slight slowdown, the U.S. economy continues to grow at a good pace, and the labor market is in full or near employment. If this does not change, and in particular if the FOMC continues to push back expectations for the imminent easing of politics, the dollar should not experience a stronger sale.

Source: Ebury and ISBnews