Daily analysis 17.08.2017

Uncertainty about the future inflation's path and the end of the Business Councils at the White House have put pressure on the dollar. British retail sales have been growing, but mostly in only one category. The zloty has kept yesterday's gains. The EUR/PLN pair approx. 4.26 level.

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

• 1.30 p.m.: Minutes from July's ECB meeting,
• 2.00 p.m.: Changes in employment and wages in Poland (estimates: +4.3% YOY and +5.4% YOY respectively,
• 2.30 p.m.: Weekly initial jobless claims in the US (estimates: 240k),
• 3.15 p.m.: July's industrial production i the USA (estimates: +0.3% MOM).

The dollar again under the pressure

Yesterday evening investors have been waiting for the "minutes" of the last Federal Reserve meeting. However, about an hour and a half before the publication of inside FOMC July's discussion to market, the news has begun to flow that the White House Business Councils, made up mostly of the CEOs of the leading US companies, would be dissolved.

Theoretically, this information should not be crucial for the markets. however, it was made among the atmosphere of Charlottesville, which could further complicate the tax reform or infrastructure investment in the US Congress. As a result, even before the publication of "Minutes" the yields of 5-years Treasury bonds have fallen by 2-3 basis points, and the weakening of the dollar has pushed the EUR/USD pair up by almost 50 pips.

Just the description of the discussion at the July FOMC meeting has been also unlikely to be positive for the dollar, although probably the effect has been enhanced by previous events. The most interesting pa of "Minutes" has been the discussion on inflation. "Most members have signalled that they expect an increase in inflation in the next two years from the current low levels and its stabilization close to 2% target." On the other hand, "many members see a probability that it will remain below 2% longer than they currently expect, and several have suggested that inflation risks may be heading down."

It is worth noting, that the above description of inflation has not included the recent (July's) lower than consensus consumer price readings, which could additionally raise fears about the pace of its return to a 2% target. Except for inflation, the Federal Reserve has also drawn attention to the weaker retail sales data, but this element has not been valid any longer due to the upward revision of the data at the last reading and a solid July's publication. With high probability, it is expected that in September the Fed will announce the start of QE tapering, but this has been also expected by most market participants.

The increasing uncertainty among more and more FOMC members about future inflation may be the argument to keep the interest rates unchanged in December (FOMC forecasts for September) and to reduce the scale of rate hikes for 2018. Such scenario would be more likely if there aren't any rebounds on PCE price (for July) and CPI (August).

The pound still weak

In the morning, the ONS (the Office for National Statistics) has posted July's retail sales. At first glance, the data has looked solid. The reading (excluding fuel) has been 1.5% YOY with a consensus of 1.2%. It is worth noting, however, that data for the previous month has been revised downward (by 0.2 percentage point).

The positive outlook of the report has been also diminished by the fact that sales have increased in shops that mainly offer food and beverages (supermarkets, alcohol stores; 40 percent on retail sales). Apart from this category, sales have dropped, which may mean that consumers have been refrained from larger purchases or have been looking for lower prices in large stores. So the data can be understood as mixed because it is difficult to determine (on the basis of a single report) whether this has been the beginning of a longer trend. The pound has reacted to ONS readings in a small extent and the GBP/USD pair has traded below 1.2900 in the morning.

The zloty has remained yesterday's gains

Yesterday's afternoon for the zloty has been beneficial. The initial small reaction to a good GDP reading has been deepened by the opening of overseas markets. The EUR/PLN has ended the session in the US close to 4.26 boundary. The first trading hours in Europe have been also relatively good for the zloty and for the euro we had to pay even 4.25. Around the midday, however, the global strengthening of the USD has been seen, and the domestic currency has lost some of its value.

Early in the afternoon, the ECB will publish minutes from July's meeting of the central bank. Mainly the attention should focus on the moment of quantitative easing announcement. It seems, however, that monetary authorities in the single currency area won't be ready to issue suggestions of significant reductions in the monetary stimulus despite the recent acceleration in GDP growth and inflation. Hence, in the afternoon, the dollar, also in relation to the zloty, may gain some value despite the negative information for USD that came yesterday.