Dollar remains strong

The US dollar is reclaiming its losses against the euro from the end of last week. We’ve learned a package of data from the domestic economy: producer inflation, industrial production, and wage dynamics. A calm start in the markets, with appearances by Fed members at the center of attention.

Testing 1.08?

On Friday, we saw a slight weakening of the USD against the EUR, with the exchange rate gradually approaching the level of 1.0870. However, the situation is reversing today, and the main world currency pair is returning to its decline. At least for now, it seems that we will witness a test of support at 1.08. This week will be rather scarce in terms of macro data, so investors will still keep in mind the job market report or even higher retail sales from the US. Such data feed into a scenario of only minimal adjustment of monetary policy at the next Fed meeting (a reduction by 25 basis points). Further, there is even an option of no move, which, at this point, has a minimal chance of happening. However, if the data from the States continue to surprise positively, this is not ruled out. Such a situation will affect the USD positively, which, surprisingly, does not lose but gains since the last 50 basis points cut in the US rates. It is worth noting that the market discounts an increased number of rate cuts in the eurozone during the same time, which adversely affects the EUR.

Worse than forecasts

The empty macro calendar does not apply to the domestic economy today, on which a few publications appeared. Industrial production reading disappointed, a result of -0.3% in September was significantly lower than analysts’ expected (0.2%). Slightly lower was also wage dynamics in September 10.3% vs 11.1%. Today also saw the publication of producer inflation, which deepens negative values and reached -6.3% (last month the result was slightly higher -5.5%). Conventionally, producers’ prices are an indicator of what will happen to consumer inflation shortly. However, it is difficult to say that these data somehow affected the złoty (PLN), which today is a hostage of what is happening on the main world currency pair. The southward direction on the edge affects the retreat from emerging markets, affecting not only PLN but also other currencies from this basket like HUF or CZK.

Statements from Fed members

The beginning of the week started with quite average sentiments, after news from the Middle East about Hezbollah’s attack in the vicinity of the Israeli Prime Minister’s villa. On the markets, one can again feel the fear of escalating conflict, visible, for example, on oil prices (+1.5%) and gold (over 2730 per ounce), which are again rising. The last few days proceeded under the sign of calming the situation in this part of the world. New media reports may cause Israel’s retaliation and possible targets, even in Iran, to be discussed again. One can also hear voices that especially Americans are ensuring that Tel Aviv doesn’t make nervous moves that may lead to a regular war with Tehran. Today there’s also a downward trend on the stock exchanges, even though the People’s Bank of China slightly reduced the cost of money. Stimulating the world’s largest factory economy previously was a positive impulse for trade. This time however there is none, since the change was expected and quite small (25 basis points). In today’s rather poor calendar of macroeconomic events, the statements of Fed members, who can shed some light on further interest rate movements in the US, remain noteworthy.

Author: Krzysztof Pawlak, Currency Analyst at Walutomat.pl