Daily analysis 03.10.2017

Data from the US industrial sector was above expectations and supports the dollar. On the other hand, the fatal PMI index data for the British construction sector put pressure on the pound. The Polish currency's quotations are stable, although at the end of the week there may be significant changes in its value.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• No macro data that can clearly influence the analysed currency pairs.

The data supports the dollar

Yesterday afternoon, the ISM institute published September’s data on the PMI index for the construction sector in the US. The level (of 60.8 pts) turned out to be 2 pts higher than the market consensus and 2.8 pts higher than August's reading. This was the highest reading since May 2004 as well as the thirteenth consecutive month of this sector's expansion (i.e. readings above 50 pts).

In relation to the previous month, the highest increase was in the price component (by 9.5 pts to 71.5 pts), which was at its highest reading since seven years. The data helped the US currency to strengthen this morning. The EUR/USD exchange rate fell below the 1.17 level for the first time in a month and a half. However, in the following hours it rebounded from this level and returned to 1.173 which was observed at the end of yesterday.

For contrast, September's data on the activity index (PMI) of the British construction sector, based on a survey made by the IHS Markit, was a negative surprise today. It recorded the fourth consecutive month of falls. However, its scale exceeded market expectations. The economist's consensus assumed a slight decrease by 0.1 pts to 51 pts, while the real reading pointed to 48.1 pts.

This not only meant that these were this index's lowest values since July 2016, (falls immediately after the referendum in June) but also a drop in the whole sector's activity. The survey's respondents pointed to significant decreases in civil engineering activity, which could be caused by the absence of new infrastructural projects.

As a response to the data, the pound's quotations incurred losses, the GBP/USD rate fell from approximately 1.33 before the publication to about 1.324, while one euro cost almost 0.89 GBP. However, the high inflation level and the monetary tightening perspective are likely to support the pound, although the inflow of worse than expected data on economy, (which can be strongly connected with the Brexit process) may create pressure on the pound and hamper its further appreciation.

Stable situation on the zloty

The zloty's quotations in relation to the main currencies were relatively stable until midday, with the exception of the relation to the pound. The British currency was under pressure from both Brexit and was below the line of expectations data on the PMI of the construction sector. The GBP/PLN exchange rate fell to 4.863 level at midday, which causes it to be at its lowest level in a week.

The next trading hours will probably bring stability to the zloty given the limited number of today’s scheduled events. The zloty could theoretically do harm to the significant strengthening of the dollar. Although there are arguments for this, (for example; a hawkish statement from Federal Reserve or better than expected data on ISM) market participants will likely wait for Friday's labour market report.

More significant movements on this currency should be expected at the end of the week. Better than expected data from the report, especially in the case of wage growth, may strengthen the expectations for rate hikes in the US. This might have a negative impact on the valuation of the zloty. In this context, tomorrow's statement from the Polish Monetary Policy Council (MPC) may be crucial. The absence of a hawkish tone that could suggest rate hikes by the end of 2018, combined with better than expected US wage data, could put considerable pressure on the zloty by the of the week.