Waiting for US decision (Daily analysis 7.09.2018)

The White House administration has not announced the decision on customs duties for goods from China yet. Uncertainty keeps the dollar in a relatively weaker condition, although macroeconomic data points to its strengthening. The zloty pares some losses, but it may weaken due to the US decision and afternoon labour market data.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 2:30 p.m.: US average hourly wages in August (estimates: +2.7% year-on-year).
• 2:30 p.m.: Change in employment in non-farm sector (estimates : +191k).

Weak data from Germany

At night (in Washington time), the so-called public comment period passed. It was widely expected that shortly after midnight, tariffs on imported goods from China worth 200 billion USD would be announced. Although such a risk still exists, the fact that it did not happen may indicate that negotiations are still underway on this subject. A potential publication on customs duties in tranches could even be positive for market sentiment if it was not accompanied by statements of the US President or other high-ranking officials of the White House.

While awaiting the US decision, which may still occur today, the dollar remained in a relatively weak condition. The EUR/USD quotations oscillated around 1.165 around midday. The dollar index (DXY), which measures its condition in relation to the six main currencies, fell below 95 points to its lowest level since last Friday.

It can be seen that the market ignores some macroeconomic data and focuses on political developments. Yesterday afternoon, the US economy's important ISM index for the service sector was published, which surprised positively with a better than expected market outlook. A few days earlier, a similar index for the industrial sector missed only 0.1 points to reach 34-year records.

Today, the Federal Statistical Office (Destatis) presented data on industrial production and trade balance in Germany. Both readings for Europe's largest economy have significantly failed market expectations. The foreign trade surplus (seasonally-adjusted) amounted to only 15.8 billion EUR in July, which was 3.2 billion below the market consensus. This was also the worst result in more than 4 years. Industrial production, in turn, recorded a decrease by 1.1% per month (an increase of 0.2% was expected), for the second time in a row.

Both the US and eurozone economic situation and emerging macroeconomic data point to a strengthening of the dollar. This remains the core scenario for the US currency, although it is largely disrupted by political factors in the short term.

The continuing relative weakness of the dollar allowed the zloty to pare the losses. Only yesterday, the EUR/PLN quotations exceeded the 4.34 boundary, while today they fell to the 4.30 before midday. It should be remembered that this strengthening may not have a significant impact in the context of potential tariff announcements on Chinese imports, as well as the US labour market report for August.

Publication from 2:30 p.m. may cause a significant increase in currency market fluctuations, especially if the average hourly wage growth exceeds 2.7 % per year. This could indicate greater wage pressure on inflation and significantly strengthen the dollar. In such a scenario, emerging country currencies, including the zloty, may be under considerable pressure.