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Afternoon analysis 25.07.2017

25 Jul 2017 15:23|Bartosz Grejner

New two-year dollar lows – the EUR/USD pair close to 1.17. The Polish currency gained, however, remained still under pressure of local political factors.

A weaker dollar the day before FOMC

The US currency once again fell sharply on the eve of the FOMC's statement (Federal Open Market Committee). The dollar has been also under pressure from internal political factors that further have weakened it. Even before 3 p.m., the EUR/USD pair has reached the level close to 1.17. Excluding the fluctuations from the end of August 2015, the highest rate since the beginning of 2015.

As a result, the dollar’s index (DXY), which measures the strength of the dollar against six major currencies, has fallen to its lowest level for just over a year. Investors may be concerned that the recent weak US economic data may ease the attitude of FOMC members to future rate hikes.

Some volatility to the dollar's trading may be introduced by the publication of July’s consumer confidence index by the Conference Board. In March this year it reached the highest level in more than 16 years and, although it was slightly lower in the following months, it was still close to the mentioned records. Currently, it is expected to decrease to 116.5 points, against 118.9 points a month earlier.

However, given the recent political factors that have already weakened the dollar, there is a risk that the consumer confidence index may fall below the consensus level. Under current conditions of a weaker dollar, in the case of such a scenario, it could be still sold-off and the EUR/USD rate could exceed 1.17.

A slightly stronger zloty

Today, the Polish currency was slightly stronger, though the recent volatility has shown that due to the political factors we can deal with relatively major changes in value. On the other hand, they are likely to be gradually diminishing together with their impact on the zloty. For the Polish currency today, a very weak dollar and the good situation on the European stock markets have been beneficial.

In the afternoon, the USD/PLN pair fell again below 3.64, 3 gr from the last over two years lows. The situation was different in the case of EUR/PLN pair, which was off 2 gr from the highest level since 24th April observed just yesterday (approx. 4.275). The problems of the zloty in recent days have also been evident in relation to the Hungarian currency. The zloty’s exchange rate against the forint (PLN/HUF) was still below 72, which was near the lowest since the beginning of March.

Tomorrow's preview

At 10.30 a.m., the Office for National Statistics (ONS) will present (preliminary) data on GDP growth rate in Q2 for the British economy. In Q1 of this year, the economic growth was 2% YOY, although it is currently expected to slow down to 1.7%. The last very positive report on the labour market has supported the British currency, but the issue connected with the process of leaving the ranks of the European Union has also been a burden for the pound.

Taking into account that this process will probably last for at least two years, the political factors may play an important role in the long run. However, a reading above the consensus (currently 1.7% YOY) could give arguments (after the aforementioned labour market report) to the appreciation of the British currency.

The FOMC will publish a statement on the US's monetary policy at 8 pm. A change in the interest rates levels is not expected. The FOMC's reaction to recent weak inflation and wage data may prove interesting. Softening the message with respect to these factors (some members may see lower pressure on future interest rate increases) could weaken the dollar, although, a part of such a movement could have already been priced in, so the final weakening would not have to be substantial.


25 Jul 2017 15:23|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

25 Jul 2017 12:43

Daily analysis 25.07.2017

24 Jul 2017 15:28

Afternoon analysis 24.07.2017

24 Jul 2017 12:17

Daily analysis 24.07.2017

21 Jul 2017 15:23

Afternoon analysis 21.07.2017

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