Strong global impulses related to reducing the risk of hard Brexit and the escalation of the trade war support the pound and the euro and damage the dollar. Readings from the USA may have lower importance than usual. The zloty benefits from a better sentiment, but a weak PMI from the country does not support the zloty strengthening, e.g. in relation to the forint.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
- 1:30 p.m.: Data from the US labour market. Estimates; changes in number of payrolls in non-farm sector: 200k; employment change 0.2% m/m and 3.1% y/y; unemployment rate 3.7%.
Serious change in sentiment
Since Wednesday evening, the EUR/USD pair rose by more than 1% and is close to 1.1450 around midday. What has happened in less than two days that sentiment on the broader market has changed so much and started to burden the dollar, and has supported the European or the British currency?
The first positive element for the euro or the pound was the reports on the possible agreement on Brexit issue. The reports concerned both the near future (increasing opportunities to regulate Ireland) and cooperation in the financial sector after the end of the transitional period (after December 2020). Lower risk of hard Brexit is positive news for the UK economy, but also for the entire Old Continent.
The global sentiment was also supported by a phone conversation between the presidents of China and the USA. It concerned the foreign trade and probably took place in a positive atmosphere, which definitely helped to create a mindful sentiment in Asia. In addition, Bloomberg reported (citing its sources), that the White House was preparing a draft of a trade agreement between the two powers.
The falling price of crude oil also supports the Asian currencies (today the Indian rupee appreciated to the dollar the most in 5 years). As a result, the three elements (Brexit, trade, oil), which have recently weighted on many currencies and favoured the dollar, are beginning to help the euro, the pound or the EM currencies, and are causing a significant dollar depreciation.
It seems that the dollar does not have to depreciate in the coming months. Firstly, the Brexit issue is far from being resolved, even in the context of incoming information. Secondly, the timing for improving relations between Beijing and Washington is surprising. In four days' time, there will be elections to the US Congress. Perhaps we are only dealing with an attempt by the White House to improve the Republicans' result, and not with the actual warming of relations between the powers. However, the dollar is still unlikely to depreciate due to the good economic situation across the ocean and the rise in interest rates by the Fed. As a result, it is too early to announce weakening of the dollar, although the incoming information is not, at least in the short term, beneficial to the US currency.
Data from the US
The first Friday of the month usually means the publication of the data from the Department of Labor. Today is no different. It should be noted, that the events of the last hours may reduce the data power. In addition, it is not worth being excited about the probable 3% y/y increase in wages. Although this will be the fastest reading in a decade, October 2017 was surprisingly weak in this respect (hurricane effect), and the low base causes the "better outcome" of readings for the previous month.
Much more important in this context is the monthly publication, where an increase of 0.2% is expected. If there is a positive surprise (preferably above 0.3% m/m), then an increase in the dollar can be expected. Otherwise, there is little chance of a slight the dollar strengthening.
Weak PMI data but zloty pares recent losses
On Wednesday evening, the USD/PLN slightly exceeded the 3.84 boundary and reached its highest levels in one and a half years. Global events related mainly to foreign trade, Brexit and crude oil price caused an increase in appetite for risk for emerging countries' currencies and the dollar weakening. Around midday, the pair moved towards the 3.78 level.
The better zloty's condition is barely seen in its relation to the euro where it losses 0.02 PLN and the EUR/PLN fluctuates in the range from 4.32 to 4.33. This is the result of weak data from the Polish industry. It dropped to 50.4 points, which was the worst reading in two years. In addition, according to the IHS Markit survey, there has been a third consecutive decline in export orders, production forecasts are the weakest in less than six years, and for the first time since July 2013, there has been a decline in employment in the industrial sector.
Most of the problems of Polish industry are caused by worse economic prospects in the eurozone (Germany and its dependence on China; politics in Italy, Brexit). It is worth noting, that also in the country the economic situation may cool down faster than expected (higher electricity costs, lack of structural changes in the labour market).
Some sort of scepticism about the possibility of maintaining a good economic situation in Poland, even in the case of reduced trade tensions or those related to Brexit, can be seen in the forint's behaviour towards the zloty. The PLN/HUF pair is falling below 74.50, which means that the zloty is the weakest to the Hungarian currency for 4 months. However, no major changes are expected in the coming hours. The dollar is likely to remain below the 3.80 PLN limit (even taking into account the scenario of good data from the USA), and the euro exchange rate should not deviate significantly from current levels.