Afternoon analysis 17.08.2017

17.08.2017 14:53|Bartosz Grejner

The European Central Bank has been concerned about the possibility of a too high euro exchange rate in the future, thereby weakening the common currency. The zloty without any significant changes- the EUR/PLN pair has been still approx. 4.26 boundary.

The euro slightly weaker

The publication of minutes from July's meeting of European Central Bank’s Governing Council has been in line with expectations with regards members' views on inflation, interest rates or asset purchases program. What could draw one's attention is the mention of the euro exchange rate.

The Council has mentioned that the current appreciation of the euro area’s currency "in some part" can be explained by fundamental factors. At the same time, there have occurred concerns about the risk of the exchange rate overshooting in the future. While the Council does not have a direct influence on currency exchange rates, a stronger euro may interfere with its attainment of the inflation target (2%) and reduction of exporters' profits.

The euro has lost a bit of value as a result of the minutes' publication. The EUR/USD pair has fallen even from 1.17 to 1.166, the lowest level since 28 July. This has been approx. 130 pips below the yesterday's high of the course after the minutes' publication of last FOMC meeting, which has turned out to be relatively dovish. However, the market could have discount the euro too much and the EUR/USD could pare some losses later on.

Although the mention of the possible rate overshooting may limit the euro's appreciation, the good economic situation of the eurozone should support the euro's zone currency and protect it against significant depreciation.

The EUR/PLN pair the lowest since 8th August

The slight weakening of the euro, before the publication of the ECB, has resulted in the lowest EUR/PLN exchange rate since 9 days - the pair has fallen to 4.253, although in the following hours the rate has returned to 4.26. Today's better condition of the dollar or the pound has made these currencies gain in relation to the zloty. These changes, however, have been within the fluctuation range of the last days.

At 2.00 p.m., the Polish Central Statistical Office (GUS) has published July's data on the average wage and employment in the enterprise sector in the Polish economy. Wages have risen by 4.9% YOY in this sector, slightly below the expectations at 5.3% and they have significantly gone down from 6% reached last month.

In contrast, employment in July has increased by 0.2 percentage point above expectations and amounted 4.5%. This data, however, had very limited impact on the zloty's trading - slightly higher one may have the GUS data that will be published tomorrow.

Tomorrow's preview

At 2.00 p.m. the Polish Central Statistical Office (GUS) will publish July's data on industrial production, retail sales and producer inflation (PPI) in the Polish economy. The preliminary estimates on GDP growth pace in Q2 are been behind us, therefore, the investors' attention may be focused on data that can give some clues of its growth rate in the next quarter.

Preliminary readings from recent months, not only from Poland, have been relatively mixed, hence it is likely that the impact of the PPI on currency exchange rates will be limited. More important and with significant influence on the Polish currency may be the data on industrial production and retail sales.

In the second part of the year, the production may increase significantly due to a low base last year, and retail sales should continue to be supported by high level of consumption, among others. The median of market expectations suggest an increase of industrial production by 8.4% and retail sales by 7.%, compared to the same month a year ago.

Two and a half hours later, the University of Michigan will publish August's preliminary data on consumer sentiment index in the US. Although it has been still at a relatively high level, from May its level has been gradually decreasing. In July, it has fallen to 93.4 pts, the lowest level since November. Taking into account the lack of a hawkish signals from the Federal Reserve and internal political tensions, another drop in sentiment among consumers could continue to weaken the dollar. Now, the market consensus points towards an increase of this index to 94 points.

 


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