Daily analysis 26.01.2018

26.01.2018 12:24|Marcin Lipka

The incoherent statement on the dollar by the US administration caused strong volatility in the currency market. The UK GDP readings are close to expectations. The zloty remained relatively stable in relation to the euro. Significant fluctuations are observed on the dollar.

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

  • 2:30 p.m.: The preliminary GDP data for 2017 Q4 from the US (estimate: 3.0% annualised),
  • 2:30 p.m.: Orders for durable goods in the USA for December (estimates: 0.8% MOM and 0.6% MOM, excluding means of transport).

Many impulses

Yesterday, a plethora of impulses were observed in the market. On one hand, the market was characterised by a still-valid statement from the US Treasury Secretary, where it was suggested that the US departs from the policy of a strong dollar. On the other hand, investors ignored the ECB’s dovish statement. However, the reactions to President Trump's comments on CNBC resulted in significant (but short-term) strengthening of the US currency.

This proves one precise thing - the market is anxious. This nervousness may be partially explained by the very incoherent message regarding the dollar by US administration. The beginning of the message included a suggestion from the Secretary of the Treasury regarding a departure from the 'strong dollar' policy, which has had little impact on the USD exchange rate over the last 25 years (except for the psychological effect). However, in terms of daily quotes, some concerns may arise. The US President had a completely different opinion later on.

In the CNBC interview with Donald Trump (the entire interview will be published today), the US President said that the dollar should be stronger and he wants to see it stronger. However, a fragment of Trump's statement ends there and it is not clear whether it is to some extent consistent with Mnuchin's comments (the weaker dollar in the short term) or whether it is completely contradictory. During the subsequent trading hours, this will likely be important information for the dollar.

In the case of the ECB's statement, it was ignored by the market. Just after investors saw that there were no clear statements that could weaken the euro, the EUR/USD pair started to appreciate, although in theory the general message was quite dovish.

Mario Draghi was surprised by the interpretation of December’s minutes due to his opinion that they did not differ strongly from those published in October. Draghi referred his statement slightly to Mnuchin's recent words on improving competitiveness through currency devaluation. In the statement, there were references to "euro volatility", which means that the ECB is not satisfied with recent movements on the euro. However, all these elements were ignored and show that a positive sentiment towards the euro and negative feeling towards the dollar may continue.

GDP from Great Britain

The GDP published data from the United Kingdom that was not satisfying, albeit better than expected. Great Britain's economy grew by 1.5% year-on-year over the last quarter and was 0.1% YOY above expectations. However, the overall reading for 2017 did not evoke a positive impression. This is only 1.8%, which is the least since 2012. Taking into account the economic situation in other developed countries, this is not a positive result.

However, in 2017 a greater portion of growth was contributed by manufacturing production (+2.7% YOY) and smaller services (1.6% YOY). This may mean that the UK economy has started adapting to a new situation where the consumer purchasing capacity is falling (negative real wages) but its external competitiveness is increasing. To some extent, this may be beneficial for the pound, although the process may take quite a long time.

Zloty dependent on global movements

The Polish currency remained relatively stable in relation to the euro. The EUR/PLN quotations stayed in the range of 4.14 to 4.15. Larger movements are observed on the dollar-zloty relation, where changes took place between 3.31 and 3.35. Almost all the recent fluctuations are a result of global events, specifically the reports from the US administration regarding the dollar.

The rest of the day will probably be under external impulse dictations. GDP data is unlikely to trigger any significant movements on the market, but further monetary or economic policy statements in both the eurozone and the US may cause some changes.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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