The US dollar claws back some of the recent losses in choppy trading. However, from a broader perspective, the FX market lacks direction (Daily analysis 17.09.2021)

Energy commodities are gaining ground despite a corrective mood prevailing on the equity markets. As a result, the Russian ruble and the Norwegian krone have been the strongest currencies recently.

As far as the equities are concerned, pandemic worries are referenced, and the market also fears reports from China. At one time, unfavourable headlines are accumulating about faltering growth, the authorities' regulatory intentions, and the financial sector's stability in the face of the hanging bankruptcy of Evergrande, the Middle Kingdom's largest developer.

In fact, the highly anticipated Wednesday meeting of the Federal Reserve will be decisive. We expect that the monetary authorities are not in an excessive hurry to normalise monetary policy, which should prove to be a punch towards the dollar and a relief for the zloty. Until then, choppy, jerky, chimerical trading will dominate the currency market. In the case of the main currency pair, i.e. the euro against the dollar, we have been observing such a picture for several days now - the EUR/USD exchange rate is hovering around 1.18.

Encouraging news from the US economy

The current readings of the most relevant indexes reflecting the sentiment of US consumers were worrisome. For example, the University of Michigan consumer sentiment index recorded one of the strongest declines in history. The latest report from the labour market also looked poor. However, retail sales data for August did not confirm the black scenario. Rising incomes, the ongoing recovery in employment, the bull market on Wall Street and the savings accumulated during the pandemic are keeping consumption strong despite the build-up of epidemic threats.

Retail sales in August were 0.7% higher than in the previous month. This is a good result given the increase in the number of people falling ill, which had an impact on the number of people visiting restaurants or going on holiday trips, for example. Data at the level of the index being "cleared" of categories such as food and fuel were already positive, as they recorded a 2.5% increase. Overall, retail sales are already a dozen or so per cent higher than before the outbreak of the pandemic, which clearly shows how great the scale of monetary and - above all - fiscal stimulation has been. The data do not change much the outlook for Fed policy: the beginning of the phasing out of asset purchases will start this year, and other metrics, such as employment and inflation, will be key to determining how quickly the crisis instruments will be discarded. There are no favourable signals for the dollar from both fronts.