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Daily analysis 04.10.2016

4 Oct 2016 13:20|Marcin Lipka

The pound ignored the macro data and reached its thirty-year minimum against the dollar. The USD is supported by the American ISM index for industry, which is better than expected. The zloty remains relatively stable before the MPC meeting tomorrow.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • No macro data that could significantly impact the analyzed currency pairs.

Pound at its new minimum

The pound has reached its thirty-year minimum against the dollar today. The GBP/USD went below the 1.2750 level. The pound was not supported by yesterday’s positive data regarding the industrial PMI, nor the IHS Markit index for the building sector, which was definitely higher than the consensus. The British currency remains under pressure of Theresa May’s statements from weekend.

Information agencies mainly focused on the data of activating the Article 50 (first quarter of 2017) and the elements concerning the immigration law. However, it’s worth noting that May wanted to give as little information regarding the negotiation process as possible.

Theoretically, this shouldn’t be surprising. In order to gain the best possible negotiation conditions, the strategy should not be revealed to the opponent. On the other hand, this information may appear the as the most concerning for the markets. Investors were afraid that the Brexit-related political obligations would dominate the economic pragmatism all along. Moreover, keeping the Brexit conditions in confidence may only create conditions for speculations.

An example of such situation is today’s information from Bloomberg. The information agency referred to statements from three representatives of the British government, who wish to remain anonymous. They claimed that the government did not agree on making financial sector’s access to the common market a priority in negotiations with the EU. Moreover, they stated that the concept of transitional phase for financial and insurance sector in the European market, was denied.

It’s also worth keeping in mind that the goods exchange data indicates that the United Kingdom is one of the least competitive economies in the world. On the other hand, its strong side the services sector (banks, insurances, engineering, education, legal services). However, if the Brexit-related matters are decreasing a positive impact of the services sector, a further overvalue of the British currency will be necessary. This would be the only way to bring the British economy back to a relative balance.

Better ISM from USA

The condition of the American dollar improved clearly since yesterday afternoon. The USD strengthened due to a better than expected industrial ISM. Additionally, it’s worth noting that not only the general reading was relatively positive (51.5 points vs 49.4 points last month), but particular components were optimistic as well.

The subindex of new orders increased to the level of 55.1 points. This clearly denied the theories of a shrinking industrial sector from last month. Production index was clearly better as well. On the other hand, employment remained weak. This index has been below the level of 50 points, which separates progress from regress, three months in a row. In general, however, the data can be interpreted as positive.

The readings from yesterday caused an increase by more than 0.8% in profitability of two-year treasury bonds. Also, the probability of rate hikes in December is now above the level of 60% (calculations by CME). Readings from the labor market (ADP tomorrow and payrolls on Friday), as well as the ISM for services (Wednesday) will be the most crucial during the forthcoming days. If these publications are positive, the EUR/USD may decline more by the end of the week.

Stabilization on zloty

The Polish currency remains stable against the euro, as well as against the franc. The pound continues its overvalue against the zloty. The British currency was only 0.01 PLN away from its three-year minimum. Taking into consideration the pound’s weakness in the global market, as well as its ignorance towards relatively positive macro data, it’s possible that the GBP/PLN will reach the area of 4.70 in the forthcoming months. This would be its lowest level in five years.

Judging from the MPC members statements, the previous announcement and the minutes, we shouldn’t expect a breakthrough at the Council’s meeting tomorrow, which should be neutral for the zloty. The American macro data should also mainly impact the USD/PLN.


4 Oct 2016 13:20|Marcin Lipka

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:

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Daily analysis 03.10.2016

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Afternoon analysis 30.09.2016

30 Sept 2016 13:56

Daily analysis 30.09.2016

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