Zloty appreciates (Afternoon analysis 09.07.2018)

The Polish currency is clearly appreciating against the main currencies - the euro is 0.10 PLN cheaper than a week ago, and the dollar is valued less by 0.13 PLN. However, the risk of deepening customs wars is still real, which could affect both the zloty and the euro.

The EUR/USD near 1.18

The beginning of the week started with the continued good sentiment in the market, which was also seen last week. The main currency pair, i.e. the euro against the dollar, rose to nearly 1.18 today, setting new highs from mid-June. On the other hand, exceeding the 1.185 level will mean the highest EUR/USD exchange rate since mid-May this year.

This positive sentiment results from a reaction related to fears about intensifying customs wars. For the next day in a row, the zloty was supported by such a positive trend and was clearly strengthening in relation to the basic currencies. The euro dropped to about 4.31 PLN (the lowest level for over 2 weeks ), and the dollar cost about 0.13 PLN less than a week ago when the price exceeded 3.80 PLN.

It should be remembered, that an escalation of the customs crisis is still possible. It could very quickly reverse most or all of the zloty's profits generated last week. The fact that the subject of international trade and its potential limitations remains relevant all the time cannot be forgotten by US President Donald Trump. Today on Twitter he mentioned that the USA spends more on NATO than any other country and that the European Union has a trade surplus of 151 million USD.

Although these texts on Twitter are unlikely to deteriorate the sentiment in such a way that it could have a significant impact on the currency market, they indicate that the conflict is not close to conclusion and before it occurs significant market fluctuations may be observed. Currently, the dollar is depreciating, but in the long run, it should continue the upward trend, given the differences in the monetary policy of the USA and the eurozone, or the pace of economic growth (in the eurozone, a slowdown in the growth rate is observed).

Tomorrow's preview

At 10:30 a.m., the Office for National Statistics (ONS) will publish May's data on industrial production for the UK. In April, the production slightly disappointed the market expectations, recording an annual growth of 1.8%, 0.9% below the expectations. The median of expectations for May indicates a marginal increase to 1.9%, including the largest component - manufacturing production - to 2.0%. At the same time, the ONS will also present data on international trade in goods, which also turned out to be much worse than expected in April (the deficit of 14 billion GBP was the lowest ever deficit).

Currently, the market consensus points to a decline in May to around 11.95 billion GBP. A further set of the weak data from the UK could weaken the pound slightly. On the other hand, it seems that the confusion about the Brexit process and how it will work (whether it will be 'soft' or 'hard', where the first option favours the pound's appreciation) may have a greater impact on the British currency.

At 11:00 a.m., Zew Institute will present July's data of the economic sentiment index for, among others, the euro area and Germany. A month ago, it worsened significantly, mainly due to the introduction of duties and the risk of their increase. The index for the single currency region has fallen to its lowest level in two years (-12.6 points), and for Europe's largest economy to its lowest in nearly six years (-16.1 points). In both cases, the median of expectations indicates a deterioration in the index to -13.2 and -18, respectively. Now, market sentiment has slightly improved and therefore, even if the data would indicate a deterioration, it may have a limited impact on the market.