Trading in the first week of July was marked by holidays and therefore lower liquidity. In the USA, Independence Day was celebrated on Tuesday, and we had holidays on Wednesday and Thursday. The low trading activity was reflected in the relatively calm development of the exchange rate of the euro against the dollar. Selling pressure was evident in Central Europe, especially in the second half of the week.
The dollar strengthened slightly against the euro until Thursday. In its relative favor were mainly still strong data from the labor market. It was disappointing at first glance, when the number of newly created jobs showed a below-consensus 209 thousand, while the previously released ADP statistics and the ISM services index indicated a chance for much higher growth. Even so, it is a number consistent with the improving situation on the labor market. In addition, the unemployment rate was lower than expected (down from 3.7% to 3.6%) and average hourly earnings grew more than expected. The market clearly continues to price in further increases in dollar interest rates from parties Fed. On the other hand, the published indicators from Europe were not particularly encouraging, especially from industry. Although, for example, German corporate orders are a promise that the next months could already look a little better.
Both the Czech koruna and the Polish zloty are paying for the dramatic weakening of the Hungarian forint. It has been weakening all this week, and overall this trend already counts eight days in a row when it has lost more than five percent against the euro. Hungary cannot break out of the negative spiral that is eroding investor confidence. Year-on-year inflation remains high (it was above 20% even in June) and threatens the purchasing power of Hungarian households, with retail sales there falling at a double-digit rate year-on-year in real terms. The June industrial PMI fell dramatically here, and industrial production itself fell year-on-year in May, even though it was a better result from the point of view of market expectations.
At the end of the week, the koruna tested the level of 23.95 CZK/EUR, which means the weakest level in the last almost four months. It lost roughly three-quarters of a percent in the week-long rating. The domestic data did not excite, but neither did they significantly disappoint (with the exception of the June PMI – see our comment here Compared to May, the result of the state budget ended significantly better at the end of June (see, however, this does not change the need to reduce the structural deficit. Friday’s data from the real economy ( industry, foreign trade, construction) did not end as badly as expected, but mainly thanks to the automotive sector. Rather than strong demand, this is helped by easing problems in global production chains and enough parts to produce and satisfy past orders. We commented on this data in more detail here https://bit.ly/3D5ZwkZ.
Author: Jan Vejmělek
2023-07-07 13:40:08
#koruna #euro #weakest #midMarch #Commentary
