Weaker yuan and zloty (Daily analysis 23.07.2018)

Stronger dollars exerts pressure on both the euro and the Chinese yuan. On Wednesday, Jean-Claude Juncker, President of the European Commission will visit Washington. The zloty weakens slightly, but the Polish currency is not in a particularly bad shape. The EUR/PLN pair is close to the 4.32-4.33 boundary.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

What next with trade? Juncker's important visit

President Trump's comments from last week, suggesting his dissatisfaction with rising interest rates in the US or the stronger dollar against the euro and the yuan, have led to a drop in the US dollar. Now some of the movement is being corrected and the main currency pair is falling below the 1.1700 limit.

The actual impact on the exchange rate of the White House is relatively limited. Comments from leading administrators may temporarily disrupt the US currency, but the Federal Reserve seems to be ignoring political intervention and will not withdraw from further interest rate increases.

The fact that interest rates in the USA are higher than in other economies also reflects that the USA is developing above potential and inflation is starting to exceed the central bank target. According to the Fed model from the Atlantic (GDPNow), the GDP in the Q2 could increase by 4.5% (official data on Friday) annualised. Bloomberg's economists' estimates on Friday readings are even higher than 5% (median 4.3%). Such a strong growth should be an argument for the Fed to raise its rates both in September and December, and comments from the White House will probably not change this.

Apart from waiting for data from the USA, a visit by the President of the European Commission to Washington may be important in the context of currencies. Jean-Claude Juncker's talks on Wednesday will focus on future trade relations between the United States and the European Union. President Trump said that it is possible to introduce customs duties on cars produced in the EU (20-25 percent). If Juncker's visit begins the phase of improving relations between Brussels and Washington, then we can expect support for the European currency (Politico, quoted by PAP, wrote that there is a significant opposition within the administration in the context of customs duty on imported cars from the EU). However, if the conversations end in nothing, the dollar will win.

Trade tensions are still present in the Chinese yuan valuation. Today, the level of 6.8 CNY per USD was again exceeded. While some speculate that the weakening of the Chinese currency is a deliberate action by the authorities in Beijing in order to remain competitive after the US import duties are introduced, the natural depreciation scenario seems to be more likely. The more restrictive the restrictions on goods exported by the Middle Kingdom are, the smaller the inflow of foreign currencies will be. This may also have a negative impact on the prospects of local businesses and foreign investment (especially in the US). Therefore, the weaker CNY is the result of these fears rather than the deliberate action of the authorities in Beijing.

Zloty rather stable

The zloty's situation continues to be mainly driven by external factors. World investors, on the other hand, remain cautious before Juncker's visit to Washington on Wednesday and further comments on foreign trade from the US and China.

The zloty has been under little pressure from the Chinese yuan since the morning. The return of the USD/CNY pair to around 6.8 slightly weakens the domestic currency. However, the zloty is not particularly weak, especially in the region. It remains unchanged in relation to the Czech crown and is slightly stronger in relation to the forint. More expensive dollar, euro or franc is a result of the global situation, and not a result of a particular local weakness of PLN. Over the next few hours, the Polish currency is likely to remain close to its current levels.