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Brexit postponed, pound stable (Daily analysis 28.10.2019)

28 Oct 2019 13:41|Bartosz Grejner

As expected, the European Union will agree to extend the Brexit deadline until the end of January 2020. British PM Boris Johnson will strive for new elections. The British currency is very stable, but as the election spectrum approaches, the fluctuations may increase again. The market situation supports the zloty, which remains quite strong. However, from Wednesday, we have observed an increase in currency market fluctuations, especially in the case of the dollar, in connection with planned events in the USA.

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.

EUR/USD close 1.1100

The week began peacefully. No significant events and macroeconomic publications resulted in a very limited fluctuation on Monday morning compared to Friday's closing levels. The dollar recorded only minimal deviations - the EUR/USD pair was around 1.1100. However, the US currency should be in the centre of our attention this week.

On Wednesday, the preliminary data on the US GDP growth pace in the Q3 will be published. According to the median of economists, the US economy grew by 1.6% quarter-by-quarter (annualised). This publication, however, is only a prelude to the main event of the day, i.e. the FOMC statement on interest rates in the USA. It is expected that interest rates will be reduced by 25 basis points. It is not determined by internal factors. Macroeconomic data from the US economy are still solid and do not justify a cut in interest rates. Thus these are, external factors, in particular, the global economic downturn and the continuing uncertainty surrounding international trade due to the customs war between China and the USA.

The message that will emerge from the statement will be important. If the statement is relatively hawkish and does not strongly suggest further monetary easing, the dollar may appreciate, especially given its slight weakening in recent weeks. However, the excitement about the US data this week is not over. On Friday, the October report on the labour market will be published, as well as ISM data for the industrial sector, which have evoked fright on the market in the last two months due to readings below 50 points (indicating a decline in activity in the sector). Since Wednesday, there has been an increase in market fluctuations, including in the range of currency volatility.

EU agrees to postpone Brexit

In the case of the Brexit, the baseline scenario is being implemented. Donald Tusk, President of the European Commission, announced on Twitter that the EU will extend the deadline for Brexit until the end of January next year. At the same time, PM Boris Johnson will try to push through a motion to open the way to early elections in the British Parliament today. As a result, the risk of the UK leaving the EU ranks chaotically has been temporarily postponed. Still, the uncertainty generated by the economic and market choices will remain, which could restore the pound's high volatility over the next few weeks.

However, currently, the pound's quotations are subject to relatively limited fluctuations. In the first hours of European trading, the GBP/USD pair moved in the narrow range of 1.2810-1.2840. Minor movements were also observed in the GBP/PLN pair, which was quoted in the range of approx. 4.94-4.96. No significant changes in the main currencies' valuation and good sentiment on the equity market result in zloty's good condition. The EUR/PLN exchange rate approached the 4.27 boundary again today, i.e. around the lowest level in three months. The empty macro calendar of events in the remaining part of the day indicates that the zloty's quotations in relation to the main currencies will stabilise today around the current levels.

28 Oct 2019 13:41|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:

23 Oct 2019 15:59

Calm Tuesday on the market (Afternoon analysis 23.10.2019)

21 Oct 2019 13:49

Brexit - still no decision (Daily analysis 21.10.2019)

18 Oct 2019 15:31

Calm Friday (Daily analysis 18.10.2019)

8 Oct 2019 15:14

USA and China heat the atmosphere (Afternoon analysis 8.10.2019)

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