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Afternoon analysis 11.08.2017

, author:

Bartosz Grejner

After recent relatively good data from the US, July's consumer inflation has missed expectations - the dollar has dived. The Polish currency has still been weak but a worse than expected reading of inflation in the US has probably prevented it from further drops.

EUR/USD pair has come back above 1.18

Highly expected July's consumer inflation (CPI) report in the USA has been disappointing. Only the core index (excluding energy and food prices) has been in line with the consensus, found to be 1.7% in annual terms. Compared to the previous month, 0.1% growth has been reached, while 0.1 percentage point more has been expected.

Below the market estimates have also been the headline inflation readings, which has amounted to 1.7% compared to the same month last year, against the expected 1.8%. And in this case, the month to month price increase has turned out by 0.1 percentage point lower than expected (0.1% vs. 0.2%).

Today's CPI data has eclipsed the recent good data from the US labour market or June's PCE inflation (the type of inflation that is considered by the Federal Reserve in its projections). If we add to this the current geopolitical tensions, the dollar appreciation scenario seems very limited at the moment.

Weak dollar has rescued the zloty

Today, the Polish Central Statistical Office (GUS) has released July's CPI data in the Polish economy. According to preliminary data, it has been 1.7% on a yearly basis. A significant growth, however, was recorded for food prices, which have increased on average by 4.7% YOY - and in July alone, butter prices have increased by 7.8% compared to the previous month.

The most important aspect in the context of the zloty has been the CPI index data in the US. It has turned out to be clearly worse than expected, which resulted in an improvement of the Polish currency’s value. However, it has remained relatively weak, especially to the euro - the EUR/PLN exchange rate has moved today in the range of 4.28 - 4.29. The disappointment from inflation reading in the US has probably preserved the EUR/USD rate from crossing the 4.30 line.

Both, the European stock markets and contracts on key indexes in the US have reacted positively to data as the probability of rate hikes has decreased. This should also support the zloty and protect it against significant falls.

Next week's preview

On Monday at 11.00 a.m., Eurostat will publish data on June's industrial production. In the preceding month, it surprised positively by increasing by 4% YOY, which has been at the same time the highest level in almost six years. Current market expectations have indicated an increase of 2.9% YOY in industrial output. Another good report (consistent or higher than expected) could confirm the current positive condition of the eurozone economy and strengthen its currency.

Three hours later, the National Bank of Poland will present July's core inflation (excluding energy and food prices). The two preceding months have had a core index of 0.8% YOY - the median of market expectations currently points to such a reading in July, as well. If it fell below this value, it would be the lowest level since March this year, which could reduce the value of the relatively weak zloty this week.

On Tuesday, at 10.30 the Office for National Statistics (ONS) will publish July's consumer inflation data (CPI) in the British economy. After reaching 2% YOY in May, the pace of consumer price growth has slowed to 2.9%. This has reduced the expectations of an interest rate increase, lowering at the same time the pound's valuation. The market consensus has been pointing towards inflation at the level of 2.7%. Taking into account the recent pound's fluctuations and its weakening, around the publication we can expect significant fluctuations. Their scale may be relatively large if the inflation reading would be outside the range of 2.6%-2.7%.

On Wednesday, we can expect higher volatility of both the zloty and the euro. The Polish Central Statistical Office (GUS) will present estimates of GDP growth in Q2 for Poland and Eurostat will do it for the euro area. In the case of the Polish economy, market expectations have been pointing to a reading of 3.8% YOY and the eurozone growth of 2.1% YOY.

On Friday, GUS will present data on industrial output, retail sales and producer inflation (PPI). The market’s focus could be on the first two indexes, as they can give hints about the GDP growth rate in Q3. Taking into account the low base for investment growth in 2016, their growth rate in the second half of 2017 is likely to be relatively high. Moreover, retail sales will most likely show solid growth, supported by strong consumption, among others.


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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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