Will dollar go down? (Afternoon analysis 08.05.2018)

The dollar continues to appreciate. The extension or termination of this trend depends on today's US decision on the nuclear agreement with Iran. The zloty remains under pressure - apart from domestic factors weakening it, its prices are strongly dependent on the dollar's direction.

EUR/USD the lowest since December

During today's session, the dollar continued to appreciate. The dollar index (DXY), which measures its strength against the six main currencies, rose to 93 points today, the highest level since the end of December last year. Today, the euro dropped below 1.19 USD, to the lowest level also since the same period (EUR/USD is the largest component of DXY).

The dollar appreciation that has been observed is a combination of a weaker euro, resulting from the cooling down of the eurozone economy and still subdued inflation, as well as the ongoing process of monetary tightening in the USA. The Federal Reserve is likely to raise interest rates at least twice this year.

In the coming days, the dollar's valuation and indirectly the entire currency market will be dependent on the US decision regarding the nuclear agreement with Iran (today at 8:00 p.m. CET) and Thursday's data on inflation from this economy. Given the recent strong appreciation of the dollar, it appears that virtually any scenario other than a total withdrawal by the US from the agreement will be negative for the dollar.

The zloty, which is sensitive to changes in the US currency's value, is also waiting for this information. The US withdrawal and sanctions against Iran would mean a worsening of market sentiment and capital outflow from emerging markets. This would probably strengthen the dollar further while having a negative impact on the whole zloty's basket.

Today, the Polish currency was still under pressure - one euro cost 4.28 PLN today, close to the upper limit since October last year, while the dollar cost 3.61 for the most since November. The weaker condition of the Polish currency was also reflected in the PLN/HUF quotations - the zloty lost about 0.3% of its value to the Hungarian currency around 3:00 p.m. The most positive scenario for the zloty would be if the US doe does not withdraw from the nuclear agreement. It is possible that only some sanctions will be imposed, which could also potentially strengthen the zloty.

Tomorrow's preview

The calendar of scheduled macroeconomic publications or events that could have a significant impact on currency exchange rates is rather limited tomorrow. The market can still discount this evening's decision of the USA regarding Iran while waiting for Thursday's consumer inflation data (CPI) in the United States.

Exactly 24 hours before the CPI data publication, the Bureau of Labor Statistics (BLS) will publish data on April's inflation among producers (PPI) at 2:30 p.m. It is relatively less important for the dollar (and indirectly for other currencies), however, if the base index (excluding energy and food prices) rises above the market consensus of 2.4% year-on-year, further increases of the dollar may be observed. Moreover, the potential changes are likely to be limited as investors wait for data on consumer inflation.