Concerns came back (Daily analysis 29.08.2018)

The dollar adjusts the recent declines, but it remains relatively weak, given the levels before Donald Trump's commentary on interest rates. The Latin American and Turkish currencies under serious pressure. The zloty starts to be affected by external factors, but the pressure on the Polish currency remains limited.

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.

Back to reality

The optimism visible on the US share market, which in the context of relatively low yields of the US Treasury bonds also translated into the higher value of currencies of emerging countries, ended quite quickly. However, the old problems came back and have started putting pressure on many Latin American and Asian currencies and indirectly supporting the dollar.

The best example of this is, of course, the Turkish lira. Apart from Turkey's serious dispute with the United States yesterday, it also emerged that the financial support from Germany, which was mentioned in the Wall Street Journal, will probably not be implemented. Today, it turned out that Turkey had as much as 6 billion USD of the deficit on its trade account (0.5 billion more than expected by economists) in July alone. The results of tourism were also much worse than expected. After the collapse in 2016, when the number of foreign visitors fell by 40% in some months, since March 2017 there have been solid increases. In July, the inflow of tourists was only 11.7% higher than in the same period last year, which was the worst result since the aforementioned March 2017. The USD/TRY pair has been growing significantly since the beginning of the week and exceeded the 6.4 level.

Other emerging countries' currencies are also under serious pressure. Yesterday, the Brazilian real reached its historic levels. Currently, the currency is depreciating due to political problems in the country and the lack of a good economic scenario after the elections scheduled for October. The new lows have also been achieved by the Argentinean peso, where the authorities are unable to control the inflation rate, despite their commitments to the IMF (the Fund will contribute up to 50 billion USD).

A positive sentiment also ended on the Mexican peso, and Venezuela is becoming more and more unable to cope. The rising number of countries with problems in Latin America (Brazil, Argentina, Venezuela) is beginning to suggest that not only individual countries, but the region as a whole may be exposed to greater than expected economic turmoil.

Apart from the Turkish lira and Latin American currencies, the Indian rupee is under pressure (the lowest level in the history against the dollar), and the yuan is losing about half a percent (but the Chinese currency has been extremely stable recently). All these elements suggest that fear in the emerging economies is real. This is not changed even by the new records on the US trading markets. This is a particularly worrying signal, because if there is such a strong fear of the real, the rupee, the lira or the Argentinian peso in a relatively good external environment, then if a greater correction is made to the optimism recently expressed in the USA, then panic can even be expected in the most vulnerable countries (those with serious current account deficits or political unstable).

Worse environment for zloty

Strong depreciation in some emerging market currencies and the dollar paing of losses are putting pressure on the Polish currency. In the morning, the EUR/PLN reached even 4.29, and the dollar increased by 0.04 PLN compared to yesterday's lows.

This is confirmed by the fact that the optimism connected with the US situation is not expected to be reflected in the continued zloty's appreciation and the risk of its moderate weakening is relatively high. It seems that this scenario should be still present, especially as it cannot be ruled out in the coming days that another round of US customs duties will be announced on goods imported from China. This may also worsen the overall global sentiment, which was one of the elements supporting the zloty.