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Zloty improves in the second part of the day (Afternoon analysis 17.08.2018)

17 Aug 2018 16:13|Bartosz Grejner

The lira was under pressure yet again, but this time with limited influence on other currencies. The dollar reflects part of the profits of the last few days, which the Polish currency benefits from. Subsequent trading hours do not announce any significant changes.

EUR/USD nearly 1.14

When the situation of the lira seemed to have calmed down a little, the Turkish currency was again clearly losing out on Friday's session. The same factors are responsible for this weakening as before, mainly the lack of prospects for an improvement in the situation with the US, the unwillingness to turn to the IMF or the very probable cut in Turkey's rating by the S&P.

The lira's sell-off had a negative impact on the equity market, but only a limited impact on the currency market. The prices of the main currency pair, EUR/USD, rose to approx. 1.14 around 3 p.m., slightly above yesterday's closing level. As a result, the zloty was also relatively stable today. In relation to the basic currencies, it even slightly gained in the second part of the day - the EUR/PLN quotations after 3 p.m. dropped to nearly 4.30, although they were at 4.32 around noon.

In the afternoon, there is also a lack of significant macroeconomic publications which could significantly affect the quotations of the main currencies. The zloty's condition will, therefore, depend on what happens to the dollar and the stock market in the US. A return to a higher risk aversion in the afternoon could result in a renewed appreciation of the dollar and a decline in the equity market. This could in turn mean a weakening of the zloty, although at the moment it seems less likely. It's more probable that prices will remain close to current levels.

Next week's preview

On Wednesday evening, the Federal Reserve will publish minutes of the last FOMC meeting. Given the current condition of the labour market, inflation, and the rapid growth of the economy, it seems unlikely that the message would be dovish. The fluctuation range on the dollar may increase, but the minutes may eventually be even a bit hawkish, which may strengthen the dollar.

The IHS Markit will present the preliminary PMI indices of the industrial and services sectors for the euro area on Thursday. The median of market expectations assumes slight increases in relation to the July levels (by 0.1 - 0.2 points). It could be bad news for the euro to see these indices fall, given the current problems (Turkey, Italy). This would also send a negative signal to the zloty, which could be under the weight of a strengthening dollar.

On the same day, a symposium in Jackson Hole will also begin (and last until August 25th). It will be attended by representatives of the world's largest central banks, so we can observe an increase in volatility on the currency market in this period. However, the most important issues for the market will remain Turkey's problems and the negotiations between China and the US with regards to tariffs and trade.


17 Aug 2018 16:13|Bartosz Grejner

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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