Afternoon audio analysis 11.09.2017

Better sentiment on the market causes the appreciation of the pound and the dollar, at the expense of, i.e. the pound, the dollar, the yen. The zloty pared some of the losses after comments by a member of the Polish MPC suggesting a cut in interest rates but it remains in a slightly weaker condition.

Euro incurred losses

The reduced risk aversion caused by, i.e. decreased geopolitical tensions in the Korean Peninsula and strength's loss of the hurricane that hit the US coast improved the market sentiment. Main European stock indexes gained slightly more than 1% - a bigger appetite for riskier assets could be seen after the depreciation of the yen and the Swiss currency. Moreover, approx. 1% of the value lost the zloty, although it still remained close to annual highs.

As a consequence, today we have observed the euro in somewhat weaker conditions, which has recently gained in times of increased uncertainty. In relation to today's globally stronger pound, the euro lost approx 0.5% - the EUR/GBP rate fell below 0.91 boundary for the first time in three weeks.

The result of better sentiment on the market was also a slight appreciation of the dollar - the EUR/USD fell below 1.20, gaining in relation to the euro 0.3%. The significant yen appreciation has also resulted in the US currency gaining in relation to the Japanese currency approx. 1%.

In the second part of the day, the calendar of events that could significantly affect the exchange rates is very limited. Therefore, if the current sentiment continues, and if both US stock indexes and U.S. Treasuries yield gain, the dollar could appreciate and leave the euro under pressure.

Zloty pared some losses

After the statement of Eryk Łon (the member of Polish Monetary Policy Council), who suggested the possibility of lowering interest rates by the NBP in the coming months, the zloty slightly depreciated. In the following hours, however, it partially recovered some losses caused by the comments of the MPC member.

At. 2.00 p.m., the Polish Central Statistical Office (GUS) presented August's report on consumer inflation. Its level, 1.8% on a yearly basis, proved to be in line with the initial expectations. However, compared to July, the drop was smaller than the preliminary data showed: it was -0.1% against the preliminary reading of 0.2%.

On a monthly basis, prices fell significantly in the clothing and footwear category - by 2.5%. In contrast, fuel prices increased by 2.2% compared to July. Food prices decreased by 0.7% in the same period, although the trend of rapid growth of butter prices was maintained - in August they grew by 8.7%.

However, this data had a limited impact on the zloty. The Polish currency clearly appreciated (by approx. 0.4%) in relation to the weaker franc, pushing the CHF/PLN pair below 3.72 boundary. The EUR/PLN quotes moved in the range of 4.24-4.25, despite the slightly weaker euro today. The zloty's somewhat worse condition could be observed in relation to the Hungarian forint as well - the PLN/HUF exchange rate has fallen by approx. 0.2% and traded just above the 72 level.

In turn, the zloty was losing in relation tothe dollar and the franc, which were stronger today. The GBP/PLN rose to almost 4.68, which was at the same time the highest level of this currency pair since August 21st. The USD/PLN exchange rate increased by approx. 0.5% to 3.545, although it remainded near the recent two and a half year lows. Next trading hours should not bring significant changes in the zloty's valuation. However, if we continue to observe the strengthening of the dollar and the rising yields of US Treasuries, the Polish currency may remain under pressure.

Tomorrow's preview

At 10.30 a.m., the Office for National Statistics (ONS) will present August's data on consumer inflation (CPI). In July, both the headline inflation and core index (excluding energy and food prices) remained unchanged at 2.6% and 2.4% respectively, in annual terms. Market's consensus points to their rise, the CPI to 2.8% YOY and the core index to 2.5%.

Around the time of the aforementioned publication, we can expect significant fluctuations in the pound's valuation, especially in the case of its relatively high deviation (0.2 percentage points and more) from the market consensus, which may change the probability of rate hikes.

In turn, the National Bank of Poland (NBP) will provide August's data on the consumer price index (CPI) in Poland. In the previous three months, it was 0.8% compared to the same months of the previous year. Maintaining this level on a yearly basis is also expected in August - however, compared to July, the median of market expectations points toward a drop by 0.1%. Taking into account the dovish attitude of the Polish Monetary Policy Council, the reading will probably have a very limited impact on the zloty's trading.