Sentiment improved after G20 (Afternoon analysis 3.12.2018)

Positive outcome of the G20 summit for the markets. The dollar depreciates only marginally, while the lower risk aversion during Monday's session improves the zloty's condition. The pound is weaker but may weaken even more.

EUR/PLN below 4.28

The sentiment on the broader market during Monday's session was positive. It was mainly the result of an agreement between China and US leaders to extend the negotiation time (by 90 days). The prospect of the end of tariffs and trade conflicts between the two powers increased the appetite for risk, which contributed to up to 2% increases in the equity market of the main European indexes (and futures contracts for their American counterparts).

At first, the dollar depreciated which was visible in its quotation against the euro, the EUR/USD pair rose to about 1.1380 in the morning (on Friday it closed at about 1.1320). With each hour, however, the exchange rate fell increasingly lower and in the afternoon it was practically at its initial level. This happened despite the better than expected PMI data for the eurozone. IHS Markit revised upward the data on industrial activity in the eurozone by 0.3 pts. to 51.8 pts. However, the dollar does not incur any significant losses probably due to the possible elimination of one of the risk factors that would prevent the Federal Reserve from a rapid monetary tightening.

The positive sentiment during Monday's session also translated into strengthening the emerging countries' currencies, including the zloty. Even the worse than expected PMI of the industrial sector in Poland, which fell to the lowest level since 2014 and indicated a regression in the sector, did not hamper it. However, this is "soft" data prepared on the basis of logistic managers' surveys, which means that it is much more sensitive for fluctuations (most likely several factors, including Brexit, fears of the imposition of additional duties by the USA, the problem of the Italian deficit) and probably next month we can observe a stronger rebound.

Therefore, the impact on the zloty's quotations was limited today. The EUR/PLN quotations even fell below 4.28 boundary, to the lowest level in three weeks. The zloty against the dollar and the franc oscillated around 3.78 PLN, the same level as during the previous trading days. However, the pound fell sharply, which is, however, mainly due to the global weakening of the British currency. Very probably Theresa May's Brexit plan will not be voted through and she may lose her position (support for the vote of no confidence in the May government is increasing).

This increases the uncertainty around the whole process, and by analogy, exerts greater sales pressure on the pound. The GBP/PLN quotations fell below 4.80 today, setting the lowest level since early October. If the Brexit plan is lost and Prime Minister May losses her position, the pound could fall below 4.70 quickly.

Tomorrow's preview

The calendar of essential events scheduled for Tuesday is practically empty. The markets are likely to discount the events of the G20 weekend summit. At 10:30 a.m. Chartered Institute of Procurement and Supply (CIPS) will publish the PMI index of the British construction sector. The median of market expectations indicates a drop in activity in this sector by 0.7 points to 52.5 points. Today's analogous index from the British industry surprised positively, rising to 53.1 points (1.5 points less was expected).

However, this did not help the pound, which clearly went below in red. The Brexit issue and the forthcoming vote in Parliament and the potential departure of Prime Minister Theresa May is now the most important key factor in determining the pound's ratings, and this will not change in the near future. Therefore, even positive data has little impact on the British currency. On the other hand, if tomorrow's reading from the British construction sector shows less activity than consensus, the pound could be under greater pressure.