The dollar is weaker again, EUR/USD approached 1,08

The dollar strength we saw after Tuesday's inflation report was erased in the following two days. The currency lost mainly yesterday due to worse data on retail sales and industrial production. Regional economic indicators increased and the weekly labor market data did not generate any major negative signal.

EUR / USD exchange rate again approached 1,08, although on Friday morning the quotations are at 1,0760. Wall Street was glowing green again yesterday. She gained Petroleum and also gold. We received the CPI reading for January from Poland.

A negative image of the American economy

To some extent, worse retail sales resulted in market hopes for imminent rate cuts in the US being strengthened again, although this is not visible in the valuation of futures contracts. In the case of these data, we received a decrease of 0,8%. m/m, which is a result much worse than Bloomberg's estimates. January's result is the worst in less than a year. Things got worse, among others: car sales, demand for construction store items also dropped. This can be partly explained by the worse weather.

The result that did not include cars was also disappointing. Here we see a decline of 0,6%. m/m. The sales result in the reduced version, which is used to prepare estimates, also turned out to be poor CBA. January showed a decline of 0,4%. The negative image of the American economy was reinforced by industrial production, which shrank by 0,1%. m/m. Weekly labor market data provided the background and the result was 212. new unemployment benefits did not arouse any emotions.

The eurodollar is gaining

Yesterday's session on Wall Street was positive, the worse data once again turned out to be better for the market, which is still playing against the Fed's interest rate cuts. It is true that neither the Nasdaq Composite nor the Dow Jones or SP500 They didn't set new historical records, but they definitely did approached this sensitive area again. The German DAX has once again entered undiscovered territory, and this morning it is gaining again and "touching" the level of 17 points.

The weaker dollar caused the EUR/USD rate to approach 1,08 again. In my opinion, this level is crucial in the short term. There is horizontal resistance and a downward trend line here. The USD weakness was exploited by gold, which is once again above the psychological barrier of USD 2000/oz.

The MPC will remain on a restrictive path

From the national data, the CPI inflation for January is noteworthy, as it showed a stronger decline than forecasts suggested. Dynamics of 3,9%. y/y is the lowest since March 2021. For such a strong decline from 6,2%. y/y in December was largely influenced by energy prices, which increased much less compared to January 2023. We are dealing here with a high base, hence the large scale of change. The "core" components reduced inflation, but to a much lesser extent.

In my opinion, a reduction of interest rates by the Monetary Policy Council in March is unlikely. The possible increase in inflation in the second half of the year will support the cautious approach of the central bank, which is why the Council should be convinced to remain on a restrictive path.

The zloty is weaker this week (against the euro and USD) mainly due to Tuesday's inflation data from the US. PLN has gained slightly against the dollar in the last two days and the USD/PLN exchange rate is around 4,03. The EUR/PLN rate is currently 4,34.

Source: Łukasz Zembik, OANDA TMS Brokers