Minor changes on the main currency pair after yesterday's comments from Yellen and Brainard. The franc deepens its recent lows and is the cheapest against the euro since June 2016. Key inflation data from the US. The zloty is gaining in value due to a good sentiment towards emerging market currencies. EUR/PLN close to 4.22.
Macro key data (CET time - Central-European). Estimates of macro data are based on information from Bloomberg unless marked otherwise.
- 2.30 pm: June's CPI inflation data from the US (estimates: 0.1% MOM and 1.7% YOY, excluding fuels and food 0.2% MOM and 1.7% YOY)
- 2.30 pm: June's Retail sales in the U.S. (estimate: + 0.1% MOM, excluding fuels and cars + 0.2% MOM)
- 3.15 pm: US industrial production for June (estimate: + 0.3% MOM)
- 4:00 pm: June's consumer sentiment index in the US, according to a study by the University of Michigan (estimate: 95 pts)
Stabilisation before data
The second speech from Janet Yellen to the US Congress did not bring a clearer change in currencies. Although, Thursday's Fed president was a bit more hawkish than on Wednesday. She implied that inflation should accelerate on the large scale toward the Federal Reserve, and that the risks of price changes are balanced.
In her next presentation this week (analogous to one on July 11), Lael Brainard stressed a concern about the recent slowdown in prices, stating that "she is observing inflation very carefully" and pointing out "the need to monitor the inflation."
However, it can be stated that we will find out which inflation view is closer to the truth relatively quickly. Today at 2:30 p.m. consumer price readings (CPI) will be published. The Federal Reserve mainly acts on PCE price data in its analyses, but both indicators are moving in the same direction and from today's data it will be possible to roughly estimate PCE indications. In addition, the Federal Reserve also analyzes other inflation measures, which were visible in June’s minutes (where the CPI data was quoted).
Firstly, investors will pay attention to how CPI inflation (excluding fuels and food) will be maintained. Since the beginning of the year, it has been falling gradually. In January, it was 2.2% YOY and in May it was 1.7% YOY (PCE 1.4% YOY). The market consensus assumes that readings from May will be maintained, but if they decrease by 0.1 pts, then the lowest rates would be levelled to over 6 years. Taking into account the recent dependence on the PCE and CPI, it would be expected that the Fed's core inflation measure would also lower the bottom limit of the change over the past 6 years. This fact was negative for the dollar and could seriously warm up the discussion about further increases in interest rates in the USA.
It is also worth noting other current readings (retail sales, industrial production) give a better understanding of GDP estimates for the second quarter. According to the GDPNow model (prepared by the Federal Reserve of Atlanta), the economic growth for the past quarter will be 2.6% on a de-normalized basis. However, if today's figures were worse than the estimates, the indicator could go to around 2%. For the first weaker quarter, this could also be an argument for weakness of the dollar. Generally, today's readings can set the direction of the US currency for at least the next few days.
Weakening of the franc
Since the morning, we have seen a noticeable decline on the Swiss currency. The franc is the lowest against the euro since June 2016. The relatively good condition of the zloty also makes CHF/PLN approach the 3.80 level, which is the lowest level since the second half of January 2015 when the SNB released the Helvetic currency.
The main reasons for the CHF weakening remain the same. The growing yields on Treasury bonds outside of Switzerland, combined with the stabilisation of the economic and political situation in the eurozone, reduce the attractiveness of the franc as a safe haven currency. For that, a relatively good currencies' sentiment of emerging countries is imposed, and thus the franc (in relation to the zloty) is at about a 30 month low.
Slight zloty appreciation
The Polish currency has gained compared to yesterday's quotations. However, they are not very noticeable variations and are close (within 2 cents in relation to the euro). The zloty's condition remains virtually unchanged in relation to the forint. PLN/HUF rates are still near to 72.50.
The afternoon readings from the US may be quite important for the zloty. Lower US inflation readings should help the domestic currency and may open the USD/PLN pair to around 3.66-3.67. This would constitute nearly two-year lows. In the case of the drop in core inflation in the US to 1.6% YOY, EUR/PLN exchange rates may decrease slightly.