Afternoon analysis 16.08.2017

The American currency has been strengthening before the publication of "minutes" tonight. The zloty has gained slightly, but in the context of recent weeks, it was still relatively weak.

Euro slightly weaker, dollar stronger

After last week’s consumer inflation (CPI) report in the USA, that has failed market expectations, the dollar has been incurring losses. However, yesterday it received an injection of positive information in the form of having better than consensus retail sales - there has also been an upward revision of the previous month’s weak data, where the headline index of retail sales has also turned out to be above expectations.

As a result, during the last 24 hours, the EUR/USD pair has tested the 1.17 boundary several times, but by 3.00 p.m. it was still marginally above it. The dollar index (DXY) in turn, has been just below 94 points, which was close to its highest level since July 26th from yesterday. Although the calendar of scheduled events for the remainder of the day is limited as is the potential for more significant dollar movements, the greater activity of US investors in the afternoon may slightly strengthen the dollar.

The strengthening of the dollar has been accompanied by a slight weakening of the euro, which has also lost to the yen and the pound, and Eurostat data with a better than expected GDP growth rate in the eurozone in Q2 had a very limited impact. It has increased by 2.2% YOY, compared with previous estimates of 2.1% and 1.9% a year ago.

Zloty stronger after GUS data

Today, the Polish currency has gained value, although some of that growth had come even before the publication of the GUS report on the pace of economic growth in Poland in Q2. It has amounted to 3.9% YOY, although it has been expected to be 0.1 percentage point lower - in the previous quarter the economy grew by 4%. The EUR/PLN pair has fallen even below 4.27 today. The zloty has been slightly stronger against the forint, although it should be remembered that in the last month it has lost significantly in value against the Hungarian currency.

A significant strengthening of the dollar could be a potential threat to the zloty - primarily due to the minutes of the last FOMC meeting, which will be published today at 8.00 p.m. (CET time). The probability of a hawkish signal from the "minutes" has been relatively limited, due to mixed data from the US economy that reached the last FOMC meeting.

In the meantime, data has been published on the level of building permits and housing starts in July. Compared to last month, they have decreased by 4.1% and 4.8% respectively - in both cases, clearly below expectations (-2% and + 0.5%). They have been virtually ignored by the market and the EUR/USD pair has fallen even below 1.17 again. This means that most of the investors' attention has been focused on the "minutes", and even if their final impact may be relatively small, then we can expect significant fluctuations around the time of publication.

Tomorrow's preview

At 10.30 a.m., the Office for National Statistics (ONS) will publish July's data on retail sales. Yesterday after the inflation report the pound has incurred significant losses - the GBP/USD pair has fallen below 1.29 (to the lowest level since 12 July). However, after today's data on average wages (that turned out to be above expectations), the rate has risen back to around 1.29. Retail sales data may give some clues of GDP growth pace, therefore, taking into account the recent volatility of the British currency, it may also cause significant fluctuations.

At 2.30 p.m. the Polish Central Statistical Office (GUS) will present July's data on average wages and earnings in the enterprise sector in Poland. In the previous month, wages have increased by 6% on a yearly basis, well above expectations of a 5% growth rate. Currently, the pace of growth is expected to slow down to 5.3% and the employment growth to stabilise at 4.3% YOY. This data, however, is likely to have little impact on the zloty. After a slightly better than expected reading of the GDP, the market's attention will probably be focused on Friday's release of data on industrial output, retail sales and PPI inflation.

At 2.30 p.m. in turn, the US Department of Labor will provide weekly data on jobless claims. The initial jobless claims count is expected to be 240k (in the past week it was 244k), and the number of insured unemployment at approx. ​​1.953 million (a week before 1.951 million). Three-quarters of an hour later the Federal Reserve (Fed) will release July's data on industrial output, which in the previous month has positively surprised by the growth of 0.4% MOM, although it has been expected to be 0.1 percentage points lower.

The market consensus has been pointing to an increase in July's industrial production by 0.3% compared to the previous month, and maintenance of the growth pace as its main component, manufacturing production, by 0.2%. Given into account Tuesday's better than expected July retail sales data, June's upward revision data, solid data from the Fed and the Department of Labor, these could strengthen the dollar tomorrow. Its appreciation, however, seems to still be limited by political factors and concerns about low inflationary pressures.