Daily analysis 13.09.2017

The euro is paring some of its recent losses in relation to the dollar. The franc is approaching several months' lows. The overall report on the British labour market was very good, but the slower than expected rise in wages stopped the pound's appreciation. The zloty loses value. The EUR/PLN pair near 4.27 level.

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

• 2.00 p.m.: July's current account balance for Poland (estimates: -835 million EUR).

EUR/USD falls have stopped

During yesterday's trading, the EUR/USD falls have stopped in the afternoon. The main currency pair, after reaching its local lows of approx. 1.1930, started appreciating and during the first part of today's trading it was only a few pips from the 1.2000 boundary.

The weaker US currency condition was observed despite reaching the historic highs by the S&P 500 index. However, the gains in the stock markets were not confirmed by a further increase in yields on US Treasury bonds. In turn, in the eurozone, the yields of German debt instruments have accelerated the appreciation trend. As a result, the spread between the US and the eurozone's bonds has not been expanded, which in turn, decreases the chances of the USD strengthening.

Some of the market's participants may also be cautious before Thursday's very important US data. If CPI core inflation continues its downward trend, there is a risk, that just before the Federal Reserve meeting scheduled on Wednesday, the growth of consumer prices (excluding fuel and food prices) will reach values close to 6-year lows (1.6% YOY). Even if some of FOMC representatives think that the current CPI trend is temporary, it will be difficult for them to expect a relatively fast tightening of monetary policy. Therefore, the Fed statement can be quite dovish, and this is a negative sign for the USD.

The situation on the franc looks interestingly. Today, the EUR/CHF pair has tested the area approx. 1.1500, which means that the Swiss currency is so close to reaching the lowest levels to the euro since the second half of January 2015. For the Helvetian currency, the Swiss National Bank's (SNB) meeting will be very important. Recent very weak readings of GDP may cause a significant reduction in growth for the whole of 2017, and therefore, they may be an argument for suggesting to keep the extremely accommodative monetary policy by the monetary authorities. It would also be a negative signal for the franc.

This time the data is not in favour of the pound

Almost every month, after the Office for National Statistics (ONS) data publication, we draw attention to the very favourable situation on the British labour market. July's readings are no exception. Unemployment in the UK fell to the 4.3% level (0.1 percentage point below forecasts) and was the lowest since the publication of this index, so since 1975.

The low unemployment index has been confirmed by the record high employment index. For the population aged 16-64 it was 75.3%, which is the highest value since 1971. Over the past three months, the economy has also generated 181k payrolls, which exceeded the estimates of economists by more than 30k.

At this time, market's participants are not interested in data on employment or unemployment but that on wage growth. It clearly disappointed the expectations. The average wage increased by only 2.1% YOY with estimates at 2.3% YOY (median). Any interesting point is the fact that the market expected a better than consensus reading, as most of the indications were within the range of 2.3-2.4% YOY. Only one economist surveyed by Bloomberg expected that the publication would be below 2.2% YOY.

As a result, the British economy has been characterized with a negative real wage level. However, as inflation is mainly a result of a weak pound, and the economy is likely to be below its potential, the chances of a relatively hawkish message from the Bank of England at Thursday's meeting are dropping. After data on wages, the pound in relation to the dollar or the euro, depreciated by approx. 0.5%.

Weaker zloty

The beginning of the session on the zloty was relatively calm. The EUR/PLN was traded slightly below the 4.26 level, and it seemed that investors have ignored the negative news for the zloty which have appeared since the beginning of the week (comments by Eryk Łon from MPC, EC decision, lower core inflation, significant foreign trade deficit for July).

The following hours are unfavourable for the national currency. Around midday, the EUR/PLN moved close to 4.2750 level, and the PLN/HUF fell to approx. 72.00. This may be the effect of too small increases (in comparison to other emerging countries) in yields of Polish bonds. Low core inflation and Eryk Łon's suggestions on the possibility of lowering interest rate may suggest smaller chances of tightening the monetary policy than expected. In addition, the institutional issues (EC decision) remind us of the ongoing dispute between Brussels and Warsaw, which is also unfavourable for the PLN.

In turn, for midday is scheduled publication of July's data on the current account balance (C/A). Weak data on foreign trade increases the risk that the C/A deficit for July may exceed 1 billion EUR. This would be the worst reading for two years, which in the case of a nervous market could extend the downward pressure on the zloty. In the longer term, however, there is still a good chance that if the market probability of increases in interest rate in the eurozone and the US does not rise sharply, the EUR/PLN pair will return to approx. 4.25 level, taking into account aforementioned risks for the zloty.