Zloty wins (Afternoon analysis 16.07.2018)

The weaker dollar supports the zloty - the euro falls to the lowest level since the month, 4.30 PLN. The zloty may be supported by the possibility of cheap oil and downward pressure on prices from the USA.

EUR/USD again above 1.17

External factors favoured the zloty on the first day of this trading week. Further global dollar weakening allowed the zloty to appreciate in relation to the main currencies. The euro fell to about 4.30 PLN, the lowest level since nearly a month, and the dollar to the lower quotation level (about 3.67 PLN) of the same period. Declining oil prices, which are constantly under pressure from President Donald Trump, can also support the Polish currency. The White House administration threatened to sell a part of the stocks from the Strategic Fuel Reserve, which may result in additional millions of barrels of oil on the market if this threat was met.

In this situation, the zloty was likely to be favoured by data from the Polish economy. Although the core inflation was in line with expectations (0.6% year-on-year), the result of the current account for May was a positive surprise. The market consensus projected a negative balance of 166 million EUR, while NBP data showed a surplus of 42 million EUR (the second surplus this year).

The Census Bureau is unlikely to put further pressure on the dollar. Retail sales in the USA increased by 0.5% in June and the core index (excluding vehicles) by 0.4% on a monthly basis. Both readings were in line with market expectations, although the revision of May's data by 0.5 percentage points upward was a positive aspect of this report, in both cases.

The dollar started to appreciate slightly after this publication, with EUR/USD dropping but remaining above 1.17. The calendar of publications for the rest part of the day is almost empty, therefore potential changes in the main currencies' valuation will be limited. If there is no new information on the trade conflict, both the dollar and the zloty should stabilise around the current levels.

Tomorrow's preview

At 10:00 a.m. the Polish Central Statistical Office (GUS) will publish data on the average wage in the Polish industrial sector. The median of market expectations indicates that in both cases the growth pace will remain unchanged in June, 7% and 3.7% year on year, respectively. However, it seems that such data will have a very limited impact on the zloty. The Polish currency is more sensitive to external factors.

At 10:30 a.m., the Office for National Statistics (ONS) will present May's data on the average wage in the UK. The wages' growth pace has been declining over the last two months. In February it was 2.8% year-on-year, while in April it was only 2.5% year-on-year. The market estimates suggest that this pace will remain stable also in May. However, if it were to slow down, it would translate into the slowest pace of wage growth since September last year. This would reduce the probability of monetary tightening in the UK and may, as a result, weaken the pound.

At 3:15 p.m., June's data on the industrial production in the USA will be published by the Federal Reserve. A month ago, it turned out to be slightly negative, recording a decrease of 0.1% per month (an increase of 0.2% was expected). A significant decrease was recorded in the main component, i.e. manufacturing production, in which activity decreased by 0.7% (the highest level in 4 years). However, the market consensus indicates an increase in both the main index by 0.5% and the manufacturing index by 0.6% on a monthly basis. In the long run, the dollar is likely to appreciate, but another set of sector weak data, given the ongoing uncertainty on trade issues, could put pressure on the dollar.