Afternoon analysis 07.08.2017

The beginning of the week saw somewhat low volatility in the currency market and slightly worse data from Germany. The value of the Polish currency has also changed a little, although it may be due to a still weak dollar.

Slightly worse expectations for Germany

This week’s first day of trading in the currency market has been relatively calm. There have also been no scheduled macroeconomic publications, hence, limited volatility most probably.

However, today we have observed a set of data that has begun to show a slowdown in the recent rapid pace of the German economy. Firstly, we have seen data on June's manufacturing production, which has recorded the first decrease in production (by 1.1%) in monthly terms since March this year, and the largest since December 2016.

Somewhat later, sentix Gmbh has presented a report on August's sentix economic index, which pointed to a second decline in a row in Germany's overall index and the third consecutive month of decrease in expectations. However, it is important to point out, that both components, the current and future assessments point to expansion, although at a slower rate. Probably, the problems of the automotive industry have contributed to slightly lower expectations of future economic activity.

Investors confidence for the whole eurozone behaved in a similar fashion. It has decreased slightly compared to the previous month, although it kept close to the highest level since mid-2007. This fall in the index has mainly been due to lower expectations for the future, which have been influenced by the aforementioned largest economy in Europe.

However, the current assessment component in the eurozone has risen to the highest level since November 2007, which may also be reflected in a relatively high euro valuation. Increased optimism can be explained by the cessation of the deflationary pressure, good economic situation and the political stabilization in the Euroregions.

Today, the value of the euro in relation to the dollar has changed very slightly. The EUR/USD pair has been trading around the 1.18 level. Despite Friday's better than expected US labour market report and dollar appreciation, it has remained under pressure in the context of recent months. Over the past four months, the euro has gained approx. 11% against the dollar.

Zloty supported by a weak dollar

The lack of a strong appreciation of the dollar after last week's better than expected inflation data and jobs market report have helped to keep the zloty at a relatively high valuation to the major currencies. Although its internal weakness can be observed in relation to the euro - the EUR/PLN exchange rate has risen from 4.24 to 4.25. Moreover, in relation to a currency from the region - the Hungarian forint, the Polish currency has been clearly weaker today - the PLN/HUF pair has moved away from the 72 boundary, which it had been approaching during Friday's session.

An important reading for the zloty may be Friday's data on July's consumer inflation (CPI) in the US economy. Another good inflation report after the PCE inflation one, which has been taken into account by the Federal Reserve in its projections, and the aforementioned labour report, could increase the pressure on dollar appreciation. This, in turn, could cause the capital outflows from emerging countries, which may be reflected in the zloty (given its relative weakness).