Daily analysis 18.07.2017

18.07.2017 12:52|Marcin Lipka

Problems with the introduction of the changes in US health insurance caused to the dollar to significantly lose value. Lower than expected inflation in the United Kingdom brought about a downward pressure on the pound. The zloty takes advantage of a falling dollar. The USD/PLN and CHF/PLN pairs have set a new monthly low.

Macro key data (CET time- Central-European). Estimates of macro data are based on information from Bloomberg unless they marked differently

  • No macro data that can clearly influence the analyzed currency pairs.

The dollar incurred significant losses

During the Asian session, the dollar has clearly started to lose value. This has pushed the EUR/USD above the 1.15 boundary, which is the highest since May 2016. The reaction was due to another two Republican Senators have resigned from supporting the current lawsuit (repealing and replacing) of the Health Care Act (Obamacare).

In general, the market probably would not care so much about changes in the US healthcare if investors were not so anxious about that the lack of consensus among the Republicans. This may increase the risk of failure to implement other reforms announced during last year's campaign (taxes, infrastructure investments, etc.).

Another important fact is that misunderstandings in Washington may not only mean the lack of fiscal stimulus and smaller pressure on interest rates increases but also a deterioration of consumers’ and businesses' sentiment due to them expecting favourable changes in the tax system.

The euro's strengthening is a consequence of a weaker dollar. Yesterday, we pointed out, that recent appreciation of the eurozone’s currency may be an argument for maintaining a relatively mild message at the ECB's Thursday meeting. The Euro, in relation to the currencies' basket of the trading nations of the eurozone, is currently testing the highest levels since the end of 2014.

Therefore, if a relatively mild message came from the ECB, then the market would face a certain reduction in expectations, regarding future interest rates in the eurozone and lack of reasons to raise the cost of credit by the Fed. Combining this fact with a generally good global sentiment (the US stock market records), this is almost an ideal condition for maintaining high exchange rates of emerging countries, including the zloty.

No inflation pressure in the Great Britain

In our morning video commentary, it was pointed out that we may be dealing with a negative surprise about the inflation in the UK. Those expectations have been fulfilled. Inflation slowed from 2.9% YOY to 2.6% YOY, although, the consensus of economists surveyed by Bloomberg assumed that June's pace of price growth would not change.

There was also a slowdown in inflationary pressures, excluding fuels and food. Core inflation increased by 2.4% YOY, while its growth was estimated at 2.6% YOY. June's inflation data would probably not trigger such a strong move (approx. 2.5 pct drop on the GBP/PLN) if not for a broad discussion inside the Bank of England about the need to raise the interest rates. Now, due to the reduction of price growth, the chances of tightening the monetary policy in the coming months should decrease.

In the context of the pound, Thursday's retail sales data will still be important. Readings for May showed a feeble growth of only 0.9% YOY. It is now expected to rebound to 2.5% YOY. However, if it turns out to be weaker, than concerns may arise about the British consumers' conditions (despite still very strong labour market). This would probably be another argument for the monetary policy to remain unchanged and a further depreciation of the pound.

The zloty benefits from a weaker dollar

In the morning, the EUR/PLN pair moved close to 4.20. Much more happened on the dollar or the pound. The US currency coast approx 3.64. This meant that the dollar reached new (nearly) two-year lows. . The weaker UK's macroeconomic data also led to a drop in the GBP/PLN valuation to 4.74 (details in previous paragraphs).

In the morning, CHF/PLN was slightly below the 3.80 boundary. It is the lowest level since the second half of January 2015. The external situation for the zloty has still remained favourable. The combination of decreasing expectations of the monetary tightening in the US with a relatively good foreign stock markets’ condition should continue to support the Polish currency.

 


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