Pressure on the dollar strengthens the zloty (Afternoon analysis 22.08.2018)

Politics is weakening the dollar. The Polish currency, which is strengthening in relation to major currencies, benefits from a weaker US currency. However, it is possible that the dollar will start to regain some of its losses as early as today.

EUR/USD above 1,16

Today, the dollar has continued to weaken. After the comments made by President Donald Trump pressing the Federal Reserve since the beginning of the week, some investors were also able to sell the dollar in the context of political events (the issue of former campaign leader of President Trump and his personal lawyer).

The euro/dollar exchange rate (EUR/USD) has risen today to approx. 1.162 around 3 p.m., the highest level in two weeks. Interestingly, this is happening in the context of minutes of the last meeting of the Federal Reserve, which will be published this evening, and its chief speech on Friday at the symposium in Jackson Hole. Both developments are likely to be positive for the dollar, given the rapid economic growth in the US, rising inflation and stimulative fiscal policy (which also affects both previous factors).

As a result, at the end of the week, a political factor of a short-term nature is likely to give way to the fundamentals and the dollar will end a week stronger than we are currently seeing. This could, in turn, weaken the zloty, which, due to the pressure on the dollar, is clearly strengthening today, as are most emerging countries' currencies. The price for the euro today even fell below 4.28 PLN and was the lowest for over a week, while the dollar to about 3.68 PLN (at least for two weeks). The probability of maintaining such relatively low levels is low. Along with the return of a stronger dollar, EUR/PLN should rise back above 4.30, and USD/PLN above 3.70.

Tomorrow's preview

On Thursday, IHS Markit will present preliminary PMI indicators for the industrial and services sectors in the euro area. At 9:30 a.m. we will get to know their levels regarding the largest European economy - Germany, and half an hour later for the single currency region. In both cases, they are expected to increase to 54.4 pts. The market consensus assumes that the industrial sector index in the euro area will remain unchanged (55.1 points) and will decline in Germany (56.6 points). The current weakening of the dollar (and thus the appreciation of the euro) seems to be exaggerated, and we should see this correction in the near future. Lower-than-expected euro-area data may somewhat accelerate this process and weaken the euro.

A record of the discussions at the last meeting of the European Central Bank will be available at 13.30 a.m. However, the so-called minutes should not ultimately lead to significant changes in the valuation of the euro. What the market is most interested in, namely when interest rates will be raised, most probably has not been discussed in detail yet. Moreover, the macroeconomic data coming in, as well as the problems of the peripheral countries of the eurozone and Turkey, do not support the need for discussion on this issue at this stage.

Tomorrow, too, the three-day symposium in Jackson Hole will begin, attended by representatives of the world's largest central banks. Fluctuations in the fx market may increase if central bankers' comments will start to appear in the newswire. The most important event for the market will probably be Friday's speech by Jerome Powell, head of the Federal Reserve. His speech may significantly strengthen the dollar, whose current weaker condition is mainly due to political factors.