The zloty ultimately bent under the pressure of a stronger dollar. Weaker than expected data from the US real estate market may slightly limit its growth potential, but Jerome Powell's testimony to the Congress may turn out to be more important.
EUR/USD tests 1.16
A set of positive macro data from Poland (wages, industrial production, producer inflation ) was not enough to protect the zloty against losses. The zloty has been gradually depreciating since morning. Before 10:00 a.m., the EUR/PLN was below the 4.30 boundary, while four hours later it went up above 4.31. This is mainly a result of a stronger dollar, but weaker than expected data from the eurozone did not help either.
For June, this was the second reading of consumer inflation (CPI) in the eurozone, thus the chances of deviating from the market consensus were limited. However, the data surprised negatively - the more important for the euro exchange rate core index was 0.9% year-on-year, i.e. 0.1 percentage point below expectations and the May reading. This is the lowest level since April this year and it limits the chances of monetary tightening by the European Central Bank.
The main currency pair (the EUR/USD) tested the 1.16 limit, which is due to both the stronger dollar and the somewhat weaker euro. The US real estate market data may hamper the dollar's position. Building permits fell by 2.2% per month in June, and housing starts fell by 12.3%. The dollar weakened somewhat after this publication - the EUR/USD pair moved to around 1.163. However, this data has a very limited impact on the dollar and in the long term.
The calendar of relevant publications is limited for the rest of the day, but the second day of Jerome Powell's testimony, Chairman of the Federal Reserve, will begin at 4:00 p.m. to the US Congress. Therefore, in the afternoon, the dollar is expected to be subject to greater volatility and the impact is likely to be greater than after the publication of the aforementioned real estate report.
If the dollar appreciates in the afternoon, the zloty could under pressure. Particularly if the main US indexes come off recent highs (yesterday the Nasdaq index closed at the highest level in history).
After weaker than expected inflation data in the UK, the market may focus on tomorrow's data. At 10:30 a.m., the Office for National Statistics (ONS) will publish retail sales data for June. For many months, the (annual) growth rate did not exceed 2%, while in May it amounted to 4.4% (2.5% was expected). The market consensus indicates an increase in sales in June by 3.7% compared to June last year. However, if this data were also far below expectations, the pound could be under additional pressure.
At 2:30 p.m., the US Department of Labor will present a weekly report on initial jobless claims. The median of market expectations suggests that claims will increase by 6k, compared to the previous week, to 220k. Moreover, the that the number of insured unemployment will decrease by 9k, to 1.73 million.
In both cases, the data is still close to the lowest levels in four decades. However, this report is rather second-tier when it comes to its influence on the dollar. Although in the context of the dollar appreciation, lower than expected inflation (core inflation) in the eurozone and Jerome Powell's speech about the excellent condition of the US labour market, such a confirmation in the form of better than expected data could support the US currency.