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The zloty even stronger (Afternoon analysis 07.08.2018)

7 Aug 2018 15:19|Bartosz Grejner

A positive session in Asia and decent data from Germany support the positive sentiment on the European stock exchanges and support the euro. This benefits the zloty, which continues the appreciation trend - the EUR/PLN pair fell to its lowest level in nearly three months.

A sigh of relief for the euro

There was an improvement in sentiment on the broad market today. During the night the main Asian stock indices were already gaining strongly (Chinese almost 3%), which also contributed to a significant increase in their European counterparts later on. The positive sentiment spilt into the currency market. The euro appreciated against the dollar - the EUR/USD rose to around 1.16, while they fell to around 1.153 yesterday.

In addition to the gains during the Asian session, data from the German economy may have supported the euro as well. Although industrial production and the trade balance turned out to be slightly below market expectations, they did not fail as much as yesterday's industrial order data. Production increased by 2.5% on a year-to-year basis in June and the trade surplus of Europe's largest economy by 19.3 billion euros. These were decent enough results to support the global sentiment. However, without the strong growths in Asia, these figures would probably not have been received so positively.

The beneficiary of the global situation on the market is still the Polish zloty, which is also supported by good macroeconomic data coming from the Polish economy. The EUR/PLN pair dropped today even below 4.25 and oscillated around that level for most of the day. This is the lowest level since the second week of May.

The Polish currency was gaining today in relation to virtually all major currencies. Noteworthy is the GBP/PLN pair. The globally weaker pound means that the exchange rate to the zloty fell to around 4.75 today. The exchange rate needs to fall only slightly now to set new five-month lows (approx. 4.739). It seems that a situation of increased uncertainty regarding Brexit may relatively quickly help the GBP/PLN pair to drop, assuming that the entire PLN basket remains in good condition.

Apart from the return of the dollar appreciation, there are currently no major threats to the zloty, at least not in the short term. However, the good condition of the Polish currency suggests that even a rapid appreciation of the dollar may not cause a deep sell-off. Friday's data on consumer inflation in the U.S. may be a test for the zloty in this respect. If they exceed market expectations, especially in the case of core inflation, the U.S. currency may gain significantly.

Tomorrow' preview

Wednesday's calendar of important macroeconomic publications and events is practically empty. It suggests that we should not expect major changes in the currency market. The main factors of volatility may be reports on the China/US tariffs dispute and the Brexit issue.

The latter factor, in particular, has attracted the attention of the market in recent days. The inconsistency within Theresa May's government in assessing the likelihood of a 'hard' Brexit (without a deal with the EU) only increases investor uncertainty and can put pressure on the pound. It may also weaken the already feeble position of the UK Prime Minister, which does not bode well for the pound.


7 Aug 2018 15:19|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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