Today’s data package from China suggests that the return of the world’s second largest economy to the path of stable development will not be easy to achieve. Meanwhile, UK readings indicate an even more difficult path for the islanders. US inflationary publications, which were supposed to shake the market, turned out to be a dud. Will today’s dynamics of producer prices break the consolidation?
Inflation in the USA
This week’s event, the most important publication, a guide for investors. Yesterday’s US inflation data were fueling imagination, especially since the currency market has been stagnant since the beginning of the year. Unfortunately, it is difficult to find a better term for the effect of the readings than a small rain from a big cloud. This happened despite the fact that forecasts were noticeably exceeded, which could suggest delaying the first rate cut across the ocean (year-on-year CPI rebounded to 3.4%). It cannot be denied – the forex market reacted to the data, but in the end the market did not change its fundamental image. The EUR/USD rate remained in consolidation and still cannot move away from the 1.095 $ level. This translates into a lack of conclusions also on the zloty, which maintains sideways trends on pairs with major currencies, although it is approaching their upper limits. On Friday before noon, the dollar exchange rate is close to 3.98 zlotys, while the euro exchange rate reaches 4.36 zlotys. We will learn about producer inflation across the ocean today, but since the consumer indicator was not able to affect the market, it is hard to expect this from the PPI. However, the moment of decision must come, but what will be an effective impulse and when will it come remains a mystery.
Chinese dragon without steam
A large part of the countries are struggling with increased dynamics of prices (even in the face of deflationary processes), but the second largest economy in the world has a diametrically different concern – deflation. For the third month in a row, consumer prices in China are falling, in December it was -0.3% year-on-year. It looks even worse when it comes to producer prices, which have just experienced the 15th consecutive month of reduction (this time -2.7%). While many countries would like to see falling prices right now, the Chinese deflation trend is ultimately a sign of problems of its economy, which in the post-pandemic world is not able to generate appropriate economic growth for itself. Internal and external factors are responsible for this state of affairs, a good example of which is the trade balance. Although in December Chinese exports went up by 2.3% year-on-year, it is the first significant increase since April of last year. While the import increase of a modest 0.2% is only the second positive reading in the last 14 months. Problems of China’s trading partners and still whimsical domestic demand are not heralds of a radical change in the situation.
(Not so) Great Britain
Although already quite historical, as it’s from November, today’s publications from the United Kingdom confirm the slowdown affecting the local economy. The annual GDP rate was only +0.2% (monthly – +0.3%), and industrial production year on year fell by 0.1% (despite forecasts for +0.7%). Despite the slowdown in inflation to 3.9% in the penultimate month of last year, it remains clearly above the target and that is with an already much cooled economy. Therefore, soon (if the price dynamics bounce back, as is the case in other developed countries), headlines about British stagflation may appear in the media. Whether the new actions of His Majesty’s Government (including tax cuts) lead to positive effects, we will learn only in a few months, but the upcoming election campaign could overshadow macro data by then. The British pound reacted calmly to Friday’s readings, but the GBP/PLN rate is trying to break 5.07 zlotys and thus overcome the upper limit of consolidation on this pair.
Adam Fuchs – currency trader InternetowyKantor.pl
