Daily analysis 02.08.2017

Yet another multi-month records of the EUR/CHF and EUR/USD pairs. Data from the US has not helped the dollar yesterday. Worse than expected PMI from the construction sector. New Franc’s and dollar’s new lows in relation to the zloty, but the Polish currency has remained relatively weak. The EUR/PLN was close to the 4.25-4.26 boundary.

Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.

• 14.30: The US ADP data for July (survey: 190k).

Euro’s new records

Before midday both the EUR/USD and the EUR/CHF hit new highs at 1.1870 and 1.1490 respectively. The European currency in relation to the US one was worth the most since early 2015. The value of the euro to the Swiss franc soared to the levels not seen since the SNB decided to release the peg to the euro area’s currency.

There was no specific macroeconomic reason which pushed the pairs to new peaks. The market probably came to the conclusion that lack of appreciation of the dollar yesterday could mean further pressure on the US currency, especially if the data from the remaining part of the week fails to meet expectations.

It is also worth noting how investors are probably receiving the US readings. It mainly applies to the debt market but it also translates to currencies. Tuesday’s inflation data slightly favoured higher treasuries yields (a positive signal for the dollar). The PCE core inflation was marginally above the estimates (1.5% y/y vs 1.4% y/y). Americans earnings were missed expectations in June, although that was mainly due to the “dividends” category. Average earnings received from work posted a solid gain of 0.4% on a yearly basis. The yields on Treasury bonds maturing in 5 years rose marginally (by 1 bp) after those readings.

After the PCE data, the market waited for the ISM manufacturing readings as well. However, reports from the car industry surfaced in the meantime which proved to be weak. Vehicle sales fell by 7% year-over-year in June, according to Autodata Corp. This brought about a visible decrease in Treasury bond yields – the ones maturing in 5 years fell by 5 bp. The later ISM publication (which proved to be in line with expectations) didn’t change that trend and the pressure on Treasury yields continued until today’s European session. This may also have contributed to the dollar’s weak condition.

Before the opening bell at the NYSE, ADP will publish its report on the employment change in the private nonfarm sector. The consensus currently points toward a 190k increase in payrolls. However, the data will probably have a limited impact on the dollar. Firstly, it hasn't correlated well with the Department of Labor data as of late. Secondly, the focus currently is mainly on the average earnings readings, which ADP does not cover. Additionally, weaker data could have a relatively higher negative impact on the dollar (maintaining the downward pressure) than a positive reading – in which case it probably wouldn’t reverse the dollar’s trend.

Worse data from the UK this time

Yesterday, we highlighted the solid PMI data for the British manufacturing sector. The Wednesday IHS Markit/CIPS publication regarding the construction sector painted a different picture. The index fell to the lowest level in 11 months and was significantly below the market consensus (51.9 pts vs. 54.0 pts).

The decrease in the construction PMI was mainly due to a deterioration in the commercial building. However, the pound’s reaction to the data was limited and, as we wrote yesterday, the British currency will await the Thursday’s Bank of England meeting. Today’s data blend in with recent mixed readings from the British economy which won’t make the decision regarding limiting the monetary stimulus any easier for the central bank.

Franc’s and dollar’s new lows

The aforementioned franc’s and dollar’s weakness in relation to the euro also translated to new lows seen on the CHF/PLN and USD/PLN pairs. The US currency’s value in relation to the zloty fell below 3.60 PLN, and the Swiss franc’s to 3.70 PLN. However, the Polish currency was still relatively weak. The EUR/PLN pair traded between 4.25 and 4.26 and PLN/HUF maintained its value close to 5-month lows. The CHF/HUF pair fell today below the close rate of 14th January 2015 (264 vs. 266.5) which meant that the value of a Swiss franc expressed in forints was approx. 1% lower than before the “Black Thursday”. The Swiss currency was still 14 gr worth more than before the 14th January 2015 events.

The situation seen on the EUR/PLN pair shouldn’t change much in the coming hours. There’s only a small chance for the ADP publication to influence the general condition of the zloty. However, CHF/PLN and USD/PLN should remain under pressure but it will be mainly due to a globally weaker franc and dollar and not a stronger zloty.