The dollar weaker only for a moment? (Afternoon analysis 21.08.2018)

The dollar is still under some pressure, but it is recovering some of its losses after President Trump's comments, which in the long run are likely to have little effect on the valuation of the US currency. The zloty has not changed much, but the return of the dollar onto the growth path may weaken it.

EUR/USD near 1.15

Today, the market did not abound in significant macroeconomic publications, hence the market's focus on political events. Donald Trump's statement that he was not satisfied with the increase in interest rates and that he expected the head of the Federal Reserve to support cheap money was clearly weakened the dollar. The euro/dollar exchange rate (EUR/USD) quickly jumped to around 1,154.

However, this reaction seems exaggerated. The Fed will probably not give in to verbal pressure from the President. In particular, the fact that both gradually rising inflation and rapid economic growth justify such a measure, aimed at protecting the economy against overheating.

The base scenario assumes that the dollar will return to its growth path, which should be supported by this week's events ("minutes" from the last Fed meeting, symposium in Jackson Hole).

Events on the broad market contributed to the stability of the Polish zloty. The EUR/PLN pair fluctuated between 4.30 and 4.31 and significant changes to its valuation should not be expected in the following hours. The dollar could be strengthened by potential statements by White House officials confirming the independence of the Federal Reserve, or by the comments of its members themselves about the lack of political influence on their decisions. In such a case, the dollar regain some ground, and the Polish zloty could weaken slightly in relation to major currencies. However, solid macroeconomic data from the Polish economy should protect the zloty against a significant sell-off.

Tomorrow's preview

At 10 a.m., the Central Statistical Office (GUS) will publish data on retail sales in July in Poland. The median of market expectations shows an annual growth rate of 8.4%. A month earlier, sales increased by 10.3%, with a consensus of 7.9%. Yesterday it turned out that industrial production in July increased by 10.3% on an annual basis, 0.6 percentage points above market expectations and the highest reading since October 2017. However, external factors will continue to have the biggest impact on the zloty.

The Federal Reserve will present the record of the discussion of the last FOMC meeting at 20 a.m. The so-called "minutes" will most probably underline the very good condition of the U.S. economy, which should also justify the relatively fast rate of interest rate increase so far and in the future. Given the weakening of the dollar in recent days, including President Trump's comments on currencies and the Federal Reserve, the "minutes" may eventually strengthen the US currency.