Afternoon analysis 14.08.2017

14.08.2017 14:55|Bartosz Grejner

An inflow of capital to more riskier assets, however, the main currency pair was stable and traded around the 1.18 level. The zloty’s valuation remained steady, although the weakened today Swiss franc visibly lost to the Polish currency.

EUR/USD still close to 1.18

In the absence of macroeconomic publications that could significantly influence the dollar or the euro, the relation between those currencies saw only minor changes. The EUR/USD pair oscillated around 1.18. However, the dollar’s index (DXY) was somewhat higher, mainly due to the increase in USD/JPY.

The Japanese currency’s depreciation was a result of geopolitical risks diminishing. The weakening of the yen was accompanied by price decreases of the Swiss franc and gold, and also the main European stock indexes increasing by 1%. This evidence of risk aversion declining and capital movement from the “safe havens” to assets considered riskier.

The Eurostat also published today a report on industrial production in the euro area in June. The 2.6% year-on-year increase proved to be 0.2 percentage points below the market consensus. Additionally, in relation to May, the sector’s production decreased by 0.6%, while a decrease of 0.5% was expected. This was the biggest monthly drop since December 2016.

The report’s impact was, however, very limited. The data didn’t substantially deviate from the market consensus and the yearly increase was the second-highest since December 2016, signalling a still relatively good condition of the eurozone.

Inflation in line with expectations

The National Bank of Poland (NBP) shared today data on the core inflation in the Polish economy in July which turned out to be in line with expectations (0.8% on a yearly basis). However, the core index decreased by 0.1% in relation to the previous month. As with the Eurostat data, the NBP report had very little impact on the Polish currency valuation.

The main drivers of value today were external factors, specifically a rebound in the market of more riskier assets. The zloty gained the most today relative to the Swiss franc – the CHF/PLN pair’s exchange rate decreased to 3.745, which was still approx. 2% above recent lows from 10 days ago.

In relation to the euro, dollar, pound or forint, the Polish currency remained stable. Taking into account the lack of important data planned for the rest of the day, the risk of substantial price movements is relatively low.

Tomorrow’s preview

At 8 a.m. tomorrow, Destatis will present preliminary data on Germany’s GDP growth rate in the second quarter. Although the German economy has been growing at a steady and solid pace and the consumers’ and companies’ sentiment level remain relatively high, the recent sentiment indices’ levels suggest a slight weakening of growth expectations. The market consensus points toward the GDP growing in Q2 by 1.9% on a yearly basis and 0.7% quarter-on-quarter in comparison to 1.7% and 0.6%, respectively, in the previous quarter. A reading below expectations could be a confirmation of recent somewhat worse trend and slightly weaken the euro.

Two and a half hours later, the Office for National Statistics (ONS) will publish July’s consumer inflation (CPI) level in the British economy. June’s data proved miss market expectations – it fell from 2.9% to 2.6%, on a yearly basis, which decreased the probability of an interest rate hike by the Bank of England and weakened the pound as a result. We expect significant price movements of the pound around the time of the publication, especially should the inflation deviate from the 2.6% - 2.7%, with the latter being the current market consensus.

The Census Bureau will report on retail sales in the US in July at 2.30 p.m. Taking into account that private consumption is the main driver behind the GDP growth, tomorrow’s publication could significantly impact the dollar’s value, which has been in a weakened state of late. Yet another portion of US data below market expectations could exert additional downward pressure on the dollar and push its valuation towards recent lows.

 


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