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Euro close to 4.30 (Daily analysis 17.07.2018)

17 Jul 2018 10:45|Bartosz Grejner

In June, wages in Poland rose well above expectations. The 7.5% year-on-year growth in the average salary is close to the upper limit of the recent increases. The zloty may gradually appreciate today due to a positive set of factors.

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

  • 10:30 a.m.: Average wage in Great Britain (estimates: 2.5% year-on-year including bonuses),
  • 3:15 p.m.: Industrial prodution in the USA (estimates: 0.5% month-on-month).

Weak dollar supports zloty

Yesterday evening, in Helsinki, there was a press conference after the US-Russian leadership meeting. Apart from political issues, its impact on the currency market is limited. Instead, it may exert some pressure on oil prices, after President Trump's comments that both countries will cooperate in the energy area. This was accompanied by Vladimir Putin's statement concerning the prices (oil, gas ) - that too high prices are not good at all as they have a negative impact on other economic sectors.

This may suggest potential cooperation between the US and Russia on lowering prices, an issue which Donald Trump continues to raise. Lower oil prices, however, are a positive scenario for the zloty, as they may potentially mean a better trade balance for Poland (and thus a higher economic growth pace).

The dollar's quotations also seem to continue to support the zloty. The EUR/USD exchange rate rose again to around 1.174. The zloty would probably strengthen slightly if the sentiment on the share market was slightly better. For the second consecutive day, the main Asian indexes were clearly depreciating and their European counterparts also started below in red. Yesterday, worse than expected data on Chinese industrial production appeared, raising concerns about the economic slowdown. In this context, the question of how much a customs war can further slow down the Chinese economy remains open.

As a consequence, the zloty depreciated slightly in the morning. The euro oscillated around 4.30 PLN, although it seems that a slightly better mood on the European markets would help to break through this lower limit. It must be noted, that despite currently stronger zloty, in the long run, the fundamental situation will rather work against it.

No chances for interest rate increases in Poland over the next year (or even until 2020), combined with lower inflation forecasts, will have a negative impact on the Polish currency. In particular, the situation is similar in the eurozone and the opposite in the US.

Before midday, the zloty received a positive stimulus in June's data on wages published by the Polish Central Statistical Office (GUS). The average salary in the Polish economy in the enterprise sector increased by 7.5% year-on-year, which was 0.5 percentage point higher than both the market consensus and May growth. If there is no significant deterioration in the market sentiment and/or the dollar appreciation, the zloty may become slightly stronger in the following part of the day.

17 Jul 2018 10:45|Bartosz Grejner

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 acknowledgement of the source is prohibited.

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