Strong euro and strengthening mini zloty rally

After higher-than-expected inflation data from the US, we received results from Europe, which also point to inflation persistence. Data on price growth dynamics from France, Spain and Germany indicate that today's data from the entire euro zone may also turn out to be higher. This applies to both the headline and the baseline indicator. Therefore, the euro may receive support again.

Since Monday, a rebound has been seen on the main currency pair. EUR / USD exchange rate managed to rise from 1,0530 and approached 1,07. Yesterday we received strong zloty appreciation rally and other currencies of our region.

Expectations adjusted upwards

As a result of today's data expectations for interest rates EBC can be revised upwards. Representatives of the bank in their statements all the time they sound like "hawks" which will certainly be reflected in the minutes of the last meeting of the institutions, which we will get to know today.

The euro may gain again today if data from the euro zone turn out to be higher than expected by the market. Headline inflation is expected to fall to 8,3%. The base y/y is expected to be at a similar level as in January and indicate 5,3 percent. Higher-than-expected results may cause the market to price in the fact that the ECB will move rates even higher and leave them in the elevated zone for longer. As a result, EUR/USD may re-enter the zone above 1,07.

As for the US, yesterday we got to know the ISM report for industry, where the Paid Price Index was the most surprising, which index increased to the level of 51,3 points. The main reading (47,7 points) broke the previous value, but was slightly below the median of expectations. Tomorrow, despite the first Friday of the month, we will not receive a report from the labor market. Attention will be focused on the ISM index for the services sector, which in January was at a very high level of 55,2 points.

Undervalued zloty

Yesterday the domestic currency made a mini strengthening rally. However, this is not an effect of the change of the MPC's stance to a more hawkish one, nor of optimistic information on disputes with the EU. The movement on the zloty is probably the result of the fact that our currency has been simply undervalued so far and now the valuation has been adjusted. Let us remember that not only the zloty has become stronger. A similar movement is noticeable in the Czech koruna and forint. This means that the currencies of our region are simply in greater demand. This can be explained by the good data from China (PMI), which we got yesterday.

The rebound of the main emerging market country could have instilled a lot of optimism in the hearts of investors who began to assume that the better economic situation in the Middle Kingdom would have an impact on other emerging market economies. The upward move on the main currency pair was also significant for the zloty. Anyway, PLN is the strongest against the euro since the first days of January, and EUR/PLN quotations have shaped a local low at 4,6620. On the other hand, in relation to the USD, our currency is the strongest since the beginning of February.

Source: Łukasz Zembik, OANDA TMS Brokers