Dollar slightly stronger (Daily analysis 23.08.2018)

The US currency appreciates, but rather not because of the Fed's "minutes". The details of PMI indexes in the eurozone are worrying. Pressure on the Australian dollar and the South African rand. The zloty gives up part of recent profits, but it remains strong and relatively stable all the time.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

Limited interpretation

Yesterday's publication of minutes did not provoke a significant reaction. For a moment, investors even interpreted the discussion between Fed representatives at the turn of July and August as dovish, as the dollar had weakened. Quickly, though, the quotations from 1.1620 returned to the 1.1600 boundary.

Some participants could be surprised that the Fed had started a discussion concerning the change of the evaluation of the current monetary situation from an accommodative (stimulating) to a neutral one. This has not yet happened, but it will happen at some point, as the rates are being raised. In theory, all this brings us closer to the end of the increase cycle, but overall, any increase in the loan cost would have the same effect. Therefore, it does not seem to be a particularly dovish signal, but a logical turn of events.

Minutes characterised by a strong focus on future monetary policy actions (in the next decade) in the case of economic slowdown. This was stressed in the section prepared by the Fed's economists. Concerns can be seen among monetary policy creators that current tools may not be sufficient to maintain (anchor) inflation expectations close to 2% when prices rise slowly for a longer period of time. This discussion, although important, is likely to be a problem in the coming years and should not affect the current activities of the Fed in the context of interest rate policy in the coming quarters.

The overall message from the FOMC members was rather optimistic. A strong labour market, which exceeds the potential of economic growth, and booming investments (especially in the mining sector) are signs of a solid economic situation. In addition, the opportunity to accelerate wages and to move beyond the general reading of core inflation are arguments for further rate hikes. As a result, given the statements made three weeks ago, the minutes were neutral.

PMI from eurozone with negative dose of information

The aggregate PMI indexes of the service and industry sectors for the eurozone as a whole were practically in line with the projections and last month's data (54.4 pts). Unfortunately, the details of this data do not look good. First of all, the sub-index of new orders was the third weakest since December 2016, and in the case of export, the increase in orders was the lowest in two years.

In the surveyed companies, the expectations concerning the situation in the next 12 months dropped to 23-month lows (aggregated for services and industry), and in the case of manufacturing production, they reached 34-month lows. However, the situation in the peripheral countries (excluding Germany and France) is described as the weakest. There, expectations fell to 5-year lows, according to research conducted by the IHS Markit. Apart from the pessimistic indexes, the labour market continues to look good, but this is not enough for the data to be optimistic, especially as the economic situation may also be affected by political issues. According to IHS Chief Economist Markit Chris Williamson, PMI in August suggests GDP growth of 0.4% in the Q3.

Political problems of the current administration in Australia (risk of populist cabinet) and South African problems after Donald Trump's comments on the country may also have a negative impact on the broad sentiment. In both cases, this is not a threat to global sentiment, but if it were to get worse, those two new, weaker elements could cause a deepening of pessimism. The weakness of the rand or the dollar supports the US currency and slightly depreciates the EUR/USD.

Zloty relatively strong

The zloty, which benefits from the weak US dollar, is now rather unwilling to return the recent increases. This should be considered a positive signal for the zloty, which also acts well in relation to the forint. Today, both the global market and the Polish zloty may be affected by two events - the beginning of the central bankers' symposium in Jackson Hole and the visit of Chinese officials connected with foreign trade.

As far as Jackson Hole is concerned, tomorrow is the day when the official speech by the head of the Fed, Jerome Powell, is scheduled (perhaps with reference to the independence of his institution, which could help the dollar). Expectations before trade negotiations are low, so the disappointment in this context should not particularly worsen the sentiment. Taking all factors into account, the zloty may be under slight pressure, but a significant part of recent the zloty's growths should be maintained.