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Better sentiment supports the zloty (Daily analysis 5.02.2020)

5 Feb 2020 12:58|Bartosz Grejner

Increased risk appetite strengthens the emerging countries' currencies, including the zloty. However, the zloty is not returning to the levels before the outbreak of the Chinese virus: the EUR/PLN exchange rate is slightly below 4.26. The pound is again supported by data from the British economy and may record further increases.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 2:30 p.m.: Change in employment in the non-farm sector in the USA in January (estimates: 158 thousand).
  • 4:00 p.m.: ISM activity index in services in the US in January (estimates: 55.1 points).

Should we consider buying dollars?

Wednesday quotations continued to improve sentiment in the broader market. This is the result of slightly better macro data that appeared on both sides of the ocean over the last few days. Today, the final PMI data for the services sector in the eurozone in January showed a similar trend as the industrial data and were slightly higher (by 0.3 points) than the preliminary readings. The improved market sentiment is also driven by the good results of the largest listed companies published in recent days, as well as media reports on vaccines against the Chinese virus.

The market situation indicates that the threat posed by the virus in China has been used for purchases. The main market indexes returned to the historical highs (Nasdaq even surpassed them yesterday), with growths of about 1% today at midday. Far more positive sentiment is also reflected in a depreciation of assets traditionally perceived as safe havens, such as gold, the yen or the franc.

The dollar is also one of them, but today the US currency continued the appreciation that started on Monday. Around midday, the EUR/USD fell close to the 1.1000 level, i.e. to around 1.1016. Although the dollar's quotations have been closed within a minimal fluctuation range in recent months, the levels of approx. 1.10-1.11 indicate the strength of the dollar, given the forecasts. The average of financial institutions' forecasts (according to Bloomberg) assume that the EUR/USD exchange rate will be 1.16 at the end of the year with a gradual weakening of the dollar. This trend is not currently observed. Partly because the imbalance in the condition of the US and eurozone economies may be slightly greater than expected, and partly because the dollar acts as an insurance policy. When buying the dollar, one actually buys protection against negative factors that have recently occurred (e.g. tension between Iran and the USA, virus in China).

Zloty pares losses, but data do not help

The improvement in global sentiment also has a positive impact on the emerging countries' currencies. Strong growth in markets encourages market participants to increase their share of riskier asset classes again, which also favours the Polish currency. The zloty basket is clearly appreciating for another day in a row, but it is not returning to the levels before the first news about the Chinese virus. The reasons for this include the slightly stronger dollar and weaker data from the Polish economy (GDP, PMI). The EUR/USD quotations fell to somewhat below 4.26 at midday, i.e. to the lowest level since January 27th, practically reversing the entire last week's loss (the exchange rate at its beginning was about 4.25). The USD/PLN exchange rate also falls, but not at such a fast pace and oscillates around 3.86, and today's globally weaker franc contributes to a drop in the CHF/PLN pair to around 3.97.

When it is far from an agreement with the EU, the pound appreciates due to economy

A slightly different situation is observed with the pound quotations. The GBP/PLN exchange rate remains stable within a narrow range of 5.036-5.054. This is influenced by positive survey data on activity in the UK economy. The PMI index for the services sector published today, rising to 53.9 points, not only proved to be clearly above expectations (1 point) but also rose to its highest level since September 2018. Greater than expected activity in services was not an isolated case. The previous days were also marked by positive surprises with analogous data from the construction and industrial sectors. This increases the likelihood of the pound's appreciation in the coming days and weeks. Given that the situation around the new trade agreement between the UK and the European Union will not be resolved quickly, macro data may support the British currency.

5 Feb 2020 12:58|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

4 Feb 2020 17:55

Industry in the USA again surprises (Afternoon analysis 4.02.2020)

4 Feb 2020 13:36

Improvement in sentiment supports the zloty (Daily analysis 4.02.2020)

3 Feb 2020 17:06

US industry the strongest in six months (Afternoon analysis 3.02.2020)

3 Feb 2020 14:55

Better data from the eurozone, worse from Poland (Daily analysis 3.02.2020)

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