Life apart from trade war (Daily analysis 19.09.2018)

The market puts aside foreign trade issues. The marked rise in the British inflation increases the chances of strengthening the pound. Data on industrial production in Poland with little impact on the zloty. The Polish currency gradually returns yesterday's growths.

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.

Trade was put aside?

Yesterday's market reaction to foreign trade issues was surprising. The US indices' approach to historical highs despite increased tensions between Washington and Beijing shows that investors are beginning to ignore trade. Moreover, it is difficult to say when the fear of expanding customs restrictions will return, but given the optimism and negation of yesterday's information, perhaps only the fact that all Chinese imports will be subject to 25% customs duties (the prospect of 3 months rather than a few days) may destabilise the market. Therefore, it is possible that the market will try to ignore the custom related information until then.

This doesn't mean that the dollar has to depreciate strongly. We have pointed out that the most beneficial scenario for the US currency is a return of fear to the markets and the search for a safe haven. Strong optimism, i.e. reaching new records on the US stock markets, may also be relatively positive for the US currency.

Optimism on the New York markets should translate into higher yields on government bonds and a prolongation of the positively leaning yield curve of government instruments. This, in turn, will ensure that the Federal Reserve will continue to focus on tightening monetary policy (both by getting rid of Treasury debt from the balance and by raising interest rates).

This is a positive thing for the dollar (although less than the EM crisis), especially if other developed economies behave less than the US one. Looking back at the Fed, next week's FOMC meeting will be very interesting. In September it ends not only with a press conference but also with macroeconomic projections.

Investors still do not believe that the Fed will raise interest rates next year by 0.75 percentage points after the total increase by 1 percentage point this year. Confirmation of the June FOMC forecasts (interest rates at the end of 2019 at 3.1 %) should strengthen the dollar despite the decrease in pressure on EM currencies.

Inflation in the UK

Usually, it is not worth focusing on single macroeconomic readings. However, today's inflation data from the UK may be an exception. It rose in August from 2.5% to 2.7% in annual terms (expectations were at the level of 2.4% y/y). In addition, the price increase accelerated in the core category (excluding fuels and food) from 1.9 to 2.1% y/y (it was expected to fall to 1.8% y/y).

ONS data shows that prices have accelerated in terms of leisure and clothing. This may encourage the Bank of England to seriously consider tightening monetary policy in the Q1 of 2019, especially if there is a general agreement between London and Brussels on the Brexit (perhaps at a special summit in mid-November). The outlook for the pound seems to be improving.

Zloty still stable

Yesterday afternoon, global optimism caused the zloty to strengthen slightly. Today, this increase is being revised and the 4.30 level is seen again. However, the global optimism translated into a stronger weakening of the franc on the broader market, which brought CHF/PLN below the 3.80.

Data from Poland on industrial production was no surprise. The 5% year-on-year growth in August (in line with the consensus) can be considered relatively good, especially as we did not have a positive calendar effect now (number of working days is the same as last year) and data from other European economies is worse rather than better. In general, if the session in the USA is calm, we should stay close to the 4.30 PLN per euro.