Dollar's fate is in Fed Chair's hands (Afternoon analysis 26.08.2020)

July's data on orders for durable goods in the USA are higher than expected, suggesting good condition of the industry. The dollar, however, stays unchanged while awaiting Jerome Powell's speech tomorrow. The zloty is in a slightly weaker condition and the EUR/PLN pair is the highest since August 7.

A better picture of industry

On Wednesday afternoon, after the New York Stock Exchange started trading, the dollar decreased the profits generated. This was also a consequence of an increase in the appetite for risk on the broader market (increases on European markets, new historical index records in the USA).

Since yesterday, positive data from Germany also support this sentiment (e.g. higher-than-expected business climate index, slightly better second reading of GDP for Q2, extension of the employment support program until the end of 2021). In such an environment, it is difficult for the dollar to generate any lasting profits.

Around midday, the US currency was still gaining about 0.5% to the euro, and two hours after the beginning of quotations in the US, it was only about 0.1%. And in the meantime, positive macroeconomic data from the US market came in. According to the Census Bureau, orders for durable goods increased in July by 11.2% on a monthly basis, well above the expected 4.7%.

Powell with greater impact than macroeconomic data

However, the data on orders had a limited influence on the dollar quotations. The US currency has been locked in a limited range in the last few days awaiting probably the most important event this week, i.e. Jerome Powell's speech. The chair of the Federal Reserve will speak at the economic conference traditionally held in Jackson Hole.

The market expects Powell to shed some daylight on moving away from the inflation target to average inflation. In practice, this could mean allowing inflation to "overheat" to make up for periods of low inflation. Around this event, we can expect an increased level of fluctuation and most likely significant movements on the dollar, given its "closure" within a limited range for some time.

This could also potentially mean changes for the whole basket of zloty, which today was in a slightly weaker condition due to the stronger dollar. In the afternoon, the EUR/PLN quotations increased to 4.42, the highest level since August 7, but still in a narrow range of fluctuations. The USD/PLN exchange rate stabilized slightly above 3.74. If Powell's statement is not enough "dovish" for the market, the dollar may appreciate as strong rebounds in the stock market take place - a combination that could potentially be negative for the zloty.