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Activity in the manufacturing and in the services sectors in the eurozone was slightly lower yet another month. However, the growth rate remained relatively elevated in terms of recent years. The zloty saw some increased volatility due to local political factors.
Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.
Lower PMIs
IHS Markit published today preliminary PMI data for the euro area, including for Germany and France. July’s readings edged lower for the second consecutive month and were lower than what the market expected. The exception were the indexes for the French manufacturing sector which rose to 75-month high and for the eurozone’s services sector which remained unchanged (albeit was lower than market consensus).
Although the data missed expectations in general, looking historically, the expansion rate in the euro area has been at its highest in six years. IHS Markit’s survey point toward a positive situation in the labour market (both in France and Germany) with employment growth at one of the highest levels in a decade.
The euro lost some value up until midday, however, the drop was marginal. The EUR/USD pair traded at approx. 1.165, only 30 bp below recent two-year highs. On the other hand, the pound was somewhat stronger today. The exchange rate of the pound against the dollar (GBP/USD) rose to approx. 1.304, which was the highest rate since Wednesday. The British currency gained in value around midday, despite the International Monetary Fund (IMF) cutting the UK’s 2017 growth rate from 2% to 1.7%.
The reason behind the downward revision was the rising inflation rate which could limit consumer spending, the main driver of GDP growth. The Office for National Statistics (ONS) will publish on Wednesday the GDP growth rate in the second quarter. In the context of the IMF’s revision to its growth rate, the ONS readings could significantly increase the pound’s volatility, especially should they deviate from the consensus. The market expectations point toward an increase of 1.7% year-over-year, as compared to 2% in the previous period.
The zloty was stronger
The Polish currency was slightly gaining in value since the beginning of the day, however, remained subdued due to local political factors. However, Andrzej Duda, the President of Poland, announced today that he will veto two bills (that previously passed in the Parliament). As a result, the zloty was visibly stronger, although wasn’t able to reverse all the losses sustained on Friday. The EUR/PLN pair fell from 4.27 to 4.24 but the euro was still some 4 gr more expensive than on Thursday.
Both the Friday’s and today’s behaviour of the zloty showed that political factors will probably be influencing its value to the greatest extent. Hence, increased levels of volatility should be expected in the coming days. However, the relatively high valuation of the Polish currency could be supported by external factors – the currently solid economic condition of the eurozone and the low valuation of the dollar (due to both economic and political factors).
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See also:
Afternoon analysis 21.07.2017
Daily analysis 21.07.2017
Afternoon analysis 20.07.2017
Daily analysis 20.07.2017
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