Customs war put on hold (Afternoon analysis 21.05.2018)

The zloty will not be more expensive? Positive factors from the country have a limited impact, while external factors are likely to create supply pressures. The dollar reached new six-monthly highs against the euro. The US is stopping a customs war with China.

New lows reached by the EUR/USD pair

Today, a slightly better sentiment was present on the broad market caused by a short but concise statement by US Treasury Secretary Steve Mnuchin. On Sunday he said that the US and China were suspending the customs war. This means, that tariffs put on aluminium and steel are temporarily suspended as long as trade talks continue.

Therefore, both the futures for the US indexes and the main indexes of European stock exchanges clearly gained. The dollar also appreciated - the main currency pair's quotations (EUR/USD) fell to just above the 1.17 limit today, setting the lowest level for over half a year (although at 3.00 p.m. the rate rose back to about 1.177).

The euro is still under pressure and is not supported by situation present in Italy. the growing yields of Treasury bonds in this country show that market concerns about the current political situation are increasing. This has a negative impact on the eurozone as a whole when the European Central Bank would stop its asset purchase program at the end of this year, as expected. However, if the ECB decides to extend the QE tapering beyond the current plan (September), this could put further pressure on the euro, as it would also postpone interest rate increases.

Political uncertainty related to the Apennine Peninsula and more expensive oil prices also exert pressure on the zloty. The inflow of capital to emerging currencies (including PLN) is also hampered by the appreciating dollar and yields of the US Treasury bonds. Better than expected macroeconomic data from the country (GDP or industrial production) will have a very limited positive impact.

Most likely only systemic data showing inflation exceeding the market expectations, increasing chances of higher interest rates in the country, could strengthen the zloty. Currently, this is a distant scenario and it seems that it is rather more possible that the Polish currency will deepen its losses if the conditions in the macro environment continue.

Tomorrow's preview

Tomorrow's calendar of scheduled macroeconomic publications is almost empty. Therefore, it is possible that the continuation of today's trends will be maintained. On the other hand, much more interesting may be the day after tomorrow when we can observe an increase in fluctuations of the dollar, the euro or the zloty. On Wednesday the preliminary PMI index data of the largest economies in Europe (as well as of the euro area) and the US will be published as well as minutes from the last meeting of the Monetary Committee of the Federal Reserve.