Afternoon analysis 11.10.2017

The low volatility of the main currency pair, the euro was the strongest against the dollar in nearly two weeks - the market awaits the FOMC’s minutes. The weaker dollar and a better sentiment in the market favoured the zloty.

Market waiting for "minutes"

Until 3:00 p.m., we observed the continuation of yesterday's downward trend in the dollar. The lack of significant macroeconomic publications during the day caused that the US currency had little reason to grow. In turn, the absence of a clear Catalonia independence declaration improved the market's sentiment - both the euro and the emerging countries' currencies appreciated.

The main currency pair, the EUR/USD, has risen to the highest level since September 26th this year (approx. 1.185). It should be noted, that euro to dollar trading was characterised by small volatility today (1.18 - 1.185). However, it is probable to be changed in the evening when the minutes of the Federal Reserve's most recent monetary committee meeting are published.

The statement and the press conference after September's meeting were relatively hawkish - the Federal Reserve (Fed) stressed the willingness for further monetary tightening. Minutes will probably also be hawkish, however, the discussion on reducing the target interest rates (from 3% to 2.8%) could prevent the dollar from appreciating.

However, a factor that could contribute to the US currency appreciation would be the assessment made by most of the Fed members on the low price growth pace in the economy as temporary. In such a scenario, we could see the EUR/USD exchange rate fall below the 1.18 boundary.

Zloty appreciated

The Polish currency remained to appreciate in relation to the main currencies. In relation to the euro, dollar or franc, the zloty was the most valuable in around two weeks, and in the case of the pound for almost a month. However, it was not a result of the internal strength of the zloty, but mainly of external factors - for example, in relation to the Hungarian forint, the zloty's value remained unchanged.

A good sentiment towards the emerging countries currencies was supported yet another day by the dollar's depreciation. However, this positive mood may be somewhat weakened by the aforementioned minutes publication. If a conversations' record turned out to be positive for the dollar, the zloty could return some of the profits generated during the day.

Significant fluctuations on the can be expected, its potential appreciation is likely to be limited due to the hawkish statement from the Federal Reserve. Market participants may also wait for Friday's data on consumer inflation in the US, which can prevent the dollar from more significant movements.

Tomorrow's preview

At 11 a.m., Eurostat will resend August's data on industrial production in the eurozone. In the previous three months, its growth was strong in relation to the similar months of the previous year. In the period May-July, the production in the single currency area increased at the pace of 3.9%, 2.8% and 3.2% respectively.

May's growth has been the highest for nearly six years, therefore, the next increases close to this level (not deviating significantly from the consensus) have supported the euro, being at the same time one of the many indexes that pointed to a good situation in the eurozone.

The median of market expectations indicates a decline in the industrial production’s pace of growth to 2.6% (in annual terms). Maintaining this relatively high level could support the euro, especially if there are no increases in the dollar's value.

Three hours later, the Polish Central Statistical Office (GUS) will publish September's data on consumer inflation (CPI) in Poland. This will be the second reading - the first one indicated an increase in consumer price levels of 2.2% YOY. Tomorrow's data will be more detailed, therefore, there will be a chance to evaluate which factors have contributed to this growth, which was the highest in six months.

The most probable reason for this was the higher energy commodities prices (mainly crude oil) - in such a scenario, the impact on the zloty's exchange rate would be limited and external factors could have a greater impact, as it has happened in the previous days.

Half an hour later, the US Department of Labor will provide data on the number of initial jobless claims received last week. In September's first weeks, the number of jobless claims increased to nearly 300k, although it decreased in the following weeks. A week ago it amounted to 260k and a further decrease to 251k is expected. However, the last weeks have been disturbed by hurricanes that have hit some states, therefore the impact of this data may also be limited.