Daily analysis 16.08.2017

The dollar has been strengthened after yesterday's readings on US retail sales. The pound's volatility has been increased by different than expected macroeconomic data. The zloty has been slowly recovering its recent losses after above expectations GDP figures. The EUR/PLN pair has been close to the 4.27-4.28 boundary and the PLN/HUF pair has been slightly above 71.00.

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. The building permit and started investments in real estate sector (estimates: 1.25 million and 1.22 million, seasonal annualised levelled data),
• 8.00 p.m. Minutes from July's last Federal Reserve meeting.

Important data from the USA

During a significant part of Monday's session, the EUR/USD pair has moved close to the 1.1800 boundary. However, the main currency pair fell even below 1.1700 yesterday. A better sentiment for the dollar has been created by much higher than market estimates the data on retail sales.

July's sales have increased by 0.6% MOM, excluding fuel and food by 0.5% MOM. The readings have been 0.3 and 0.1 percentage point respectively above the market estimates. Additionally, June's publication has been revised upwardly. In the case of general reading, the estimates have been improved by 0.5 percentage points and by 0.4 percentage points in the core retail sales. As a result, annual retail sales have grown from around 3% to 4%, which may already be considered a solid reading.

Not only the dollar has reacted positively to the data. The expectations for future interest rates have clearly increased. Yields of 5-year US Treasury bonds have been on Friday at the 1.74% level (after low inflation readings) and today, the quotes have been almost 10 basis points higher and approaching the highest levels in August. Investors can also begin to think positively about the condition of the US economy, especially as the Federal Reserve's GDPNow model from Atlanta (for the time being, based on very limited data) has suggested an increase of 3.7% in Q3.

Due to better than consensus American readings, investors may also slightly differentiate today's "minutes" from July's Federal Reserve. On Monday, it seemed that due to the lower consensus inflation data, a significant portion of the message could be ignored and considered out of date. However, Tuesday's solid readings on consumer appetite for consumption may consider the FOMC's message to be quite important and may also maintain a relatively positive sentiment to the dollar.

Pound volatility

The prolonged discussion on Brexit's conditions and July's lower than expected inflation data have created a downward pressure on the sterling in the first part of the week. Today, the ONS (the Office for National Statistics) has published a very good report on the British labour market. Unemployment has fallen to its lowest level in over 40 years and amounted 4.4% in June (4.5% estimates).

Also, the percentage of employed to working-age population (16-64 years) has risen to the highest level in history and reached 75.1%. In the last three months (by June), the British economy has created 125k new working places, with an expected increase of 97k. Opportunities for more accommodative monetary policy have been also increased by slightly better than consensus wages growth (2.1% vs. 2.0) in the 2Q.

Good labour market conditions in the UK may withhold some of the downward pressure on the pound. Still, the market will mainly continue to follow the events of Britain's future relations with the European Union and inflation. In addition, it is also worth noting that the EUR/GBP pair has been slowly approaching historical highs and 1.00 value. It may also weigh on the pound.

Good GDP has supported the zloty

Published at 10 a.m., the preliminary GDP readings for Q2 has slightly helped slightly the Polish currency quotes. The economy has expanded at 3.9% YOY pace with consensus at 3.8% YOY level. Additionally, it is worth noting that the seasonally adjusted reading has reached 4.4% which has been the highest publication in over 5 years.

On the other hand, however, it should be emphasized that the zloty, along with other currencies of the region, has gained even before the publication of GUS. It should also be noted that the rebound on PLN/HUF pair has been very weak. It has just slightly exceeded the value of 71.00 and in the last month, the Polish currency has weakened to the Hungarian one as much as 2.4%. From this it follows, that the zloty has still been relatively weak although solid GDP data should reduce the risk of further depreciation. An element of uncertainty may be the "minutes" of the Federal Reserve. Considering solid US retail sales data, the market may be positioning to rise of USD value after the release of "minutes" at the last FOMC meeting. This would be a negative signal for the PLN, both in relation to the euro and the dollar.