The White House's imprecise trade policy signals, weak global sentiment and nears record high oil prices are putting pressure on emerging countries' currencies. The zloty is also clearly depreciating. The euro is the most expensive in a year and a half, and the dollar is the most expensive in a year.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
- A lack of macro data may noticeably impact the analyzed currency pairs.
The atmosphere on the US markets changes all the time. This is partly a result of the inconsistent message from the White House, and of the struggle between a more or less conflicting approach to China. However, other more structural problems of many economies should not be forgotten, as they may be at the root of much longer trends, including in the currencies of emerging countries (EM).
Yesterday early in the evening, sentiment began to worsen when Larry Kudlow, head of economic advisors to the US President, said that Trump is not softening China's stance. According to Bloomberg, Kudlow on the Fox Business said that the US is negotiating with China from a powerful position because the US economy is growing and China is not doing its best.
Investors clearly did not like this conflictive tone (even taking into account the fact that Kudlow appeared on the conservative Fox News), especially because a few hours earlier there were many indications that the White House was taking a step backwards in the context of the conflict with Beijing (the issue of investment restrictions in the USA). As a result, the New York markets ended the session with strong declines, and this was the next day in a row.
In addition, the sentiment on the trading floor was also weak. Global tensions also triggered a dollar appreciation, which in relation to the euro came close to annual highs again. Moreover, yesterday oil price had risen (falling stocks in the US, strong demand for fuels). The WTI type has exceeded 73 USD per barrel, reaching its highest levels since November 2014. Brent misses 2 USD to reach its new long-term highs.
All these elements are putting pressure on the currencies of emerging countries. Today, the Indian rupee reached its lowest levels in relation to the dollar (the level of 69 INR was exceeded). In turn, the Hungarian forint is valued at a record low in relation to the euro. Overall, emerging market currencies (MSCI EM Currency Index) are already falling by 5.4% this quarter, which means that it is their third worst quarter since the financial crisis of 2008-2009.
Over the next few days, the main market's focus will be put on where the US customs administration is going. If next Friday (July 6th) they are physically introduced to Chinese goods (25% of the goods imported from the Middle Kingdom - about 10%), then we should expect further weakening of the emerging market currencies and new low records in the zloty.
However, it is important to note that even if the trade-related situation stabilises (e.g. duties are suspended), the adjustment in EM currencies does not have to be long at all. The dollar should remain the winner in this battle (interest rate rises if the sentiment is better), while expensive oil and the less stable economic situation (the eurozone, Latin America) may still have a negative impact on the EM currencies valuation and make it more difficult for them to rebound.
Zloty still on lows
Around midday, euro cost 4.37 PLN. This has been the highest since January 2017. The dollar was also close to the annual highs (3.78 PLN). Most of the signals for the zloty still come from outside (details in the previous paragraphs). The zloty's condition has been similar to that of the Czech crown (positive information) in recent days. The forint, which today reached new historical lows in its relations with the euro, is doing worse. Never before has it been necessary to pay 329 HUF for the European currency.
Although EUR/PLN is still reaching new highs, there are still no prospects that would seriously reduce the pressure on the zloty. Of course, adjustments are not excluded (e.g. in the case of suspending customs duties on China), but the global situation will remain tight enough to allow the zloty to increase only as a response to the recent falls, rather than the beginning of a trend strengthening the Polish currency.