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U.S. data didn't surprise (Afternoon analysis 03.08.2018)

3 Aug 2018 16:38|Conotoxia.com

The zloty continued to be in good condition and strengthened, with EUR/PLN falling to its lowest level in the last three months. Key labour market data in the US - on wages - in line with market expectations, which contributed to stabilising the dollar.

EUR/PLN approaches the 4.25

The most important publication today was the US labour market report for July. This is due to the data on the change in the average level of hourly earnings, which has a significant impact on inflation. These, however, changed in line with market expectations: by 2.7% per annum and 0.3% per month.

On the other hand, the increase in employment in the non-farm sector in July was below the market consensus - it amounted to 157 thousand, 36 thousand below expectations. On the other hand, May and June's data were revised upwards by a total of 59 thousand, so it can be said that the data were hardly surprising, especially that payroll readings show a high level of volatility and are often revised (which is to some extent a result of the survey methodology and a relatively small sample size).

Dollar initially reacted negatively to the publication of the U.S. Department of Labor - the EUR/USD increased from about 1.159 to 1.161. However, in half an hour, the quotations returned to their starting point, but that was no wonder given the data which should ultimately turn out to be market neutral and the dollar may continue the gradual appreciation trend.

No positive surprise from the report on the U.S. labour market is good news for the Polish zloty. Despite the strengthening of the dollar, China's trade dispute with the USA hanging over the market, the zloty has clearly strengthened today. The price for the euro has fallen today to around 4.254 PLN as of 3 p.m. CET, the lowest level in nearly three months.

The good condition of the Polish currency in the last two weeks is a result of better relations between the EU and the USA, as well as good macroeconomic data coming from Poland. With the exception of the latest manufacturing PMI reading, which turned out to be low, although its final outcome may have been distorted by earlier uncertainties on trade issues between the EU and the US. Despite the fact that the Monetary Policy Council has been dovish on interest rates, all the data indicate that this will be an upward movement. In the current macroeconomic and geopolitical environment, this is an additional factor supporting the Polish zloty.

PLN exchange rates in the following hours will depend to a large extent on the dollar's performance. Taking into account today's labour market data in the U.S., fluctuations in the U.S. dollar should not be significant.

Next week's preview

The dispute between China and the US on customs issues is likely to continue next week as well. Its further deterioration may worsen sentiment on the market, which in theory could be negative for the zloty, but the last two weeks have shown a high resilience of the Polish currency. The changes on the zloty could be limited, therefore, at least until Friday.

FX market attention may be focused on the last day of the week. The Bureau of Economic Analysis (BEA) will publish consumer inflation data (CPI) in the US in July. The most important will be the core index (excluding energy and food prices). The median of market expectations is 2.3% year-on-year. Exceeding this level would mean the highest level of core inflation in 10 years and would increase the likelihood of a faster monetary tightening in the US. This could also stop the good run we have been observing on the zloty.


3 Aug 2018 16:38|Conotoxia.com

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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