Positive sentiment supports zloty (Afternoon analysis 27.08.2018)

This time, the weakening lira has a very limited impact on the market. Falling dollar and increases on the share market support the zloty's good condition - the EUR/PLN pair is close to the lowest level in more than two weeks.

Dollar slightly weaker

Today's absence of relevant macroeconomic publications caused limited market developments in the major currencies. In this context, the Turkish lira stood out, which was again depreciating significantly - in relation to the dollar even more than 3%, reaching the exchange rate of nearly 6.28. While in the previous two weeks the lira's marked weakening was associated with a worsening of market sentiment, today such correlation has not been observed.

The dollar was slightly weaker after Friday's speech by Jerome Powell, the Federal Reserve chairman, at a symposium in Jackson Hole. No reaction to President Trump's words demanding lower interest rates has sent a dovish signal to the market, but in the long run, this changes very little.

The Mexican peso can exert some pressure on the US currency even today. It gained more than 1% against the dollar after media reports (CNBC) on reaching agreement on NAFTA in the talks between the US and Mexico concerning the key aspects. This also had a positive impact on share market quotations - European exchanges and futures contracts for the main indexes in the US appreciated after that info was published.

Combination of weaker dollar and growths on global exchanges is usually a good signal for the zloty. Today it had the same impact and the Polish currency was appreciating in relation to the main currencies, although the changes were not big. The EUR/PLN price dropped to 4.27, near the bottom limit of the last two weeks.

There are no significant macroeconomic publications scheduled for the rest of the day. If the sentiment on the US trading floors does not deteriorate in the evening and the main stock exchange indices fall, the zloty should maintain its good condition and close the day around current levels.

Tomorrow's preview

At 2:30 p.m., the Bureau of Economic Analysis (BEA) will present July's data on the foreign trade of goods in the US. The median of market expectations indicates an increase in the deficit to 68.6 billion USD (by 0.68 billion compared to June). An hour and a half later, the Conference Board will publish August level of consumer sentiment in the US. The market consensus assumes a slight decline in this index from 127.4 to 126.5 points.

These are levels close to 17 years old records, and a slight decline in the US consumers' sentiment may be caused by the imposition of duties and a potential further escalation of the customs war with China, which would translate into higher prices in shops. The impact on the dollar of the CB index and trade balance data is likely to be limited. However, its weakening since mid-August has been mainly caused by political rather than fundamental factors.

The political factors are most often temporary and the US currency should return to the upward trend. A positive combination of readings may help, although the market may mainly focus on Thursday's PCE inflation data in the US, and by then the scale of change may be limited.