No visible end to the lira problems - the Turkish currency was still under pressure. The dollar didn't gain today and it visibly helped the zloty in the second part of the day.
EUR/USD back above 1.14
The macroeconomic calendar of important data was virtually empty today. However, the behaviour of the Turkish lira continues to heavily weigh on the currency market. Its exchange rate in relation to the dollar today exceeded the level of 7 several times. Over the past two weeks, the Turkish currency has lost around 40% of its dollar value.
The currency crisis in Turkey also seems far from improving. President Erdogan maintains a confrontational attitude towards the USA and the idea of raising interest rates, among other things, which would help to stop the decline in the value of the lira and protect the economy from the abyss. The Turkish central bank's assurance that it would use all means to stop the currency depreciation did not go far enough. There was no mention of interest rates that could calm the market.
The sentiment on the market is far from improving, we have not seen any deep declines on the stock market or on the main currency pair, i.e. the euro against the dollar. The EUR/USD exchange rate increased around 3 p.m. and was slightly above 1.14, reflecting from the hole around 1.136, which was also the lowest level since July 2nd last year.
The lack of further strengthening of the dollar at the expense of the euro clearly helped the zloty. The Polish currency made up for the losses incurred in the first part of the day and oscillated even slightly below the levels of Friday's closing just before 3 p.m.
Further developments on the Polish zloty will depend on the behaviour of the main currency pair and changes on the US stock exchange. If we do not see the main currency pair fall significantly below 1.14 and the main stock exchange indices in the USA do not show significant falls, the Polish currency should maintain a relatively good condition from the afternoon.
As well as the current issue of Turkey's strong impact on markets around the world, a relatively large number of macroeconomic publications tomorrow may further increase the level of currency market volatility.
Destatis will publish preliminary data on Germany's GDP growth in the second quarter of the year at 8 a.m. A median of market expectations indicates that Europe's largest economy grew at a rate of 2.5% year-on-year (0.4% quarterly). This reading can give a good indication of the pace of development of the euro area, which we will see three hours later (consensus: +2.1% year-on-year). Together with the GDP of the single currency region, Eurostat will also present industrial output data in June (consensus: +2.6% year-on-year).
Taking into account the current pressure on the euro, the readings worse than expected may further weaken its valuation, also having a negative impact on the zloty. Like other emerging market currencies, the zloty is in a weaker position due to higher risk aversion and capital flows towards safe-haven assets.
The Central Statistical Office (GUS) will publish tomorrow at 10 a.m. preliminary data on the growth rate of Poland's GDP in the second quarter of the year. The median of market expectations shows an increase of 5.1% annually and 1.0% quarterly. Net exports and stocks may be an element of uncertainty, but weak growth is not likely to be expected. However, in case of worse than expected data from the eurozone, lower than expected GDP growth in Poland and still weak sentiment on the broad market, the zloty could continue to lose value in relation to major currencies.
The data on British wages published by the National Statistics Office (ONS) at 10:30 a.m. may be relatively important for the pound. The increase in average wages (including bonuses) the market consensus assumes will remain at the level of 2.5% annually. Deviation from this level by as much as 0.1 percentage point may increase the volatility of the pound due to a slight modification in the likelihood of interest rate rises. In the long run, however, Brexit will play a greater role in the valuation of the pound and in monetary policy, as the Bank of England itself has pointed out.