Afternoon analysis 08.09.2017

08.09.2017 15:10|Bartosz Grejner

Positive data from the UK on manufacturing production and trade balance support the pound. The franc and the yen appreciated at the expense of the dollar as a result of fears connected with possible hurricane damages in the United States. The Polish currency is in good condition, even though it has lost to the globally stronger franc and the pound today.

GBP/USD pair above 1.32 boundary

Today, the Office for National Statistics (ONS) presented data that has significantly strengthened the British currency. Practically the only negative news was on construction output, which fell by 0.4% year on year (0.2% growth was expected) and was also the biggest decline for a year. However, the overall production index increased in July by 0.4%.

It was mainly due to an increase in manufacturing output by 1.9% compared to the same month last year, against the expectations of 1.7%. The biggest contribution to this increase was made by transportation equipment (1.3 percentage points), which increased by 6.1% YOY.

The ONS data on the trade in goods and services balance turned out to be positive. July's deficit of 11.58 billion pounds was lower than expected (11.95 billion). Also, June's deficit was revised from 12.72 billion to 11.53 billion pounds - the previous figure stood at the highest since September 2016.

The aforementioned positive data from the British economy strengthened the pound. Its value increased particularly in relation to the weaker dollar today - The GBP/USD pair breached the 1.32 level and reached the highest level since August 3rd this year. The pound clearly strengthened to still the relatively strong euro. The EUR/GBP fell to its lowest level for just over two weeks.

Later in the day, the calendar of scheduled events is limited. Therefore, we could observe a slightly worse sentiment associated with the recent natural disasters that have been damaging the United States. As a consequence, the supply pressure on the dollar is likely to remain, and as a result, the currencies of Switzerland and Japan may be relatively strong today.

Zloty in slightly better condition

After reaching the lowest level since the end of 2014 (3.51 PLN), the price one had to pay for 1 USD expressed in zloty, increased in the next few hours by approx. 2 gr. The pound was also up against the Polish currency - the GBP/PLN exchange rate was above 4.66, which was the highest level since August 23rd.

The exchange rate of the franc in relation to the zloty slightly increased (by approx. 0.3%), due to the inflow of capital to the so-called "safe havens". However, today's CHF/PLN level was inside the relatively narrow trading range of the past two weeks. In turn, the EUR/PLN oscillated around the 4.25 level - similar to the end of Thursday.

Despite the incurred losses in relation to the franc or the pound, the zloty's condition was still relatively good. It was visible in relation to the Hungarian forint - after yesterday's drop below the 72 level, the PLN/HUF pair again crossed this level and traded at the 72.1 boundary, close to a one and half month highs of the past few days.

Trading of the Polish currency in the following hours should be relatively stable. Possible stronger fluctuations on the dollar may be caused by, i.e. fears of greater US destruction, and bring the USD/PLN pair closer to their lows or even deepen them today.

Next week's preview

The coming week may be important for the pound. Significant publications are scheduled, which may notably affect its valuation. Therefore, substantial fluctuations in the pound’s value can be expected.

On Tuesday, the Office for National Statistics (ONS) will publish August's data on consumer inflation (CPI). In the previous month, both the headline and core indexes (excluding energy and food prices) remained unchanged at 2.6% and 2.4% respectively. Now, the median of market expectations assumes their growth of respectively 0.2 and 0.1 percentage point. The level of inflation is important for the monetary policy. If August's reading fails market expectations, the chances of monetary tightening could decrease which would negatively affect the pound.

A day later, the ONS will present data from the UK labour market. The most important will be the data on average wages, which growth pace has weakened in the recent months - the real wages of British people (taking into account inflation) was negative. In July, the growth rate of wages was 2.1% on a yearly basis. Consensus for August implies an increase of 2.3%. Increased pace may mean putting inflationary pressure, which could be positive for the British currency. In turn, its decline may further reduce real wages, which may reduce consumption and as a result, weaken the pound.

On the other hand, on Thursday, the Bank of England will publish a statement and minutes after a Monetary Committee meeting on Thursday (both, the rates and the bond-buying program are likely to remain unchanged). If there are statements that could indicate tightening of the monetary policy, the pound could appreciate significantly. However, the probability of such a scenario seems to be limited - slower inflation growth and mixed macroeconomic data coming from the UK economy and the uncertainty associated with the Brexit process mean that there are not many arguments in favour of monetary tightening.

On the same day at 2.30 p.m., the Bureau of Labor Statistics (BLS) will present August's data on consumer inflation (CPI) in the US. After a drop to the lowest level since October 2016 (1.6%) in June this year, consumer price growth increased by 0.1 percentage point in the following month. On the other hand, its core index from May to July remained unchanged at the 1.7% level YOY. This publication may cause significant fluctuations in the dollar trading, especially if the readings deviate by more than 0.1 percentage point from the previous month’s values.

 


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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