Afternoon analysis 27.09.2017

The dollar at more than a month highs in value, while the yields on Treasury bonds maturing in 2-year at almost 9-year highs. The result of the events in the US is the zloty's depreciation, which, as in recent days, has been under significant pressure.

Zloty under pressure of the stronger dollar

Today, the dollar continued the upward trend started recently. Its appreciation was influenced mainly by the perspective of tightening monetary policy (rate hikes) in the US and the tax system reform, which President Donald Trump is to present today.

The rate of the main currency pair, EUR/USD, fell to approx. 1.17 level, the lowest rate in a month. The yields on the US Treasury bonds also appreciated. The yields on debt instruments maturing in 2 years have risen to the highest levels since 2008 (approx. 1.48%).

Under such circumstances, the capital may flow out of emerging countries markets towards the US market. This has significantly affected the zloty, which for the last few days has been depreciating and those drops continued today. In relation to the euro, the Polish currency was the weakest in half a year and the price for one euro breached the 4.315 PLN boundary.

In turn, the globally stronger dollar gained more than 1% to the zloty - the USD/PLN pair climbed to the level above 3.68, the highest one since July, 14th (then, the last time was observed the level of over 3.70). The zloty's depreciation was not only recorded in relation to the main currency pairs - in relation to the Hungarian forint the zloty lost nearly 0.7% of the value.

The zloty's situation was not supported by today's Census Bureau data in the US, which published better than expected August's data on orders for durable goods. It exceeded by 0.7 percentage points the median of market expectations of 1% in relation to the previous month. Moreover, an increase of last month's core index (excluding orders in transportation) by 0.2 percentage points to 0.8% MOM.

In the following hours, the zloty may still be under pressure. Its current depreciation may be related to a strong appreciation of the dollar. Its continuation, in turn, will probably be dependent on Donald Trump's speech today and presentation of the tax reform in the evening.

The continuation of the dollar's upward trend and a further increase in yields of the US Treasury bonds in response to the US President's speech may evoke additional pressure on the zloty. On the other hand, stopping the dollar's appreciation could be caused by an absence of details on the aforementioned plan or the fear of some senators, who may be concerned about the these changes' impact on the federal budget.

Tomorrow's preview

Preliminary consumer inflation readings (CPI) for Spain (9am) and Germany (2pm) may turn out to be relatively important data in the context of the euro tomorrow. In the first case, consumer prices' growth is expected to be 1.8% on an annual basis in September (from 1.6% a month ago) and in the second case analogical one (without changing pace).

This data may give investors hints on the inflation level in the eurozone, therefore, its divergence from consensus may increase the euro's volatility. This will not change its valuation in any way, however, given its recent depreciation, especially in relation to the strengthening dollar, a bit better than expected reading might support the euro and influence the EUR/USD rate.

At 2.30 p.m., the Bureau of Economic Analysis (BEA) will present data on GDP growth pace in the Q2 for the US economy. This will be the final GDP reading - preliminary data pointed to an increase of 2.6% in relation to the analogous quarter of last year, however, the following reading positively surprised with the pace increase to 3%. Now, the market's consensus assumes that the level will be maintained in the latest publication. On the other hand, historically, this data has been on constant changes through the last readings. In the case of such a scenario, there would be chances for bigger volatility on the dollar, although it seems that the tax reform programme and the perspective of monetary policy tightening in the US may have a more significant impact on the dollar's valuation.