Daily analysis 06.06.2017

Stronger yen somewhat impaired global sentiment. Fairly good data from the euro area didn’t help the common currency. Two days before the British election, polls for conservatives remain unfavourable. The zloty depreciated a bit against both the leading currencies and the forint. The EUR/PLN is close to bordering 4.20.

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

• No significant macroeconomic data that may affect the analysed currencies.

Global risk aversion

At the beginning of the European session, the treasury yields and the dollar were both falling. Theoretically this is a positive environment for EM currencies. However, it is currently combined with a stronger yen against both the falling dollar and the European currency. Overall it is not a beneficial environment for the EM currency.

In the following hours, the dollar slide reversed against the euro, while the yen retained previous levels. This caused further deterioration in the sentiment of some EM currencies. The moves are not dramatic, but from the beginning of the week, the Brazilian real lost more than 1.5% to the dollar, and the Turkish lira dropped by 0.85%. The third weakest among the 31 currencies of developed and emerging countries is the Polish zloty, which fell by more than 0.5% from Friday's closing.

In general, however, currencies that have recently gained a lot of value or are dependent on portfolio inflows are sensitive to even the smallest fluctuations in sentiment. Hungarian and Czech currency lost around half of the zloty’s slide.

Solid data from the EU

In the morning, Eurostat reported retail sales data across the EU for April. It increased by 3.0% YoY. The readings showed a relatively weak picture for Germany (2.0% YoY), yet for the third month in a row the increase in French sales was over 3% y/y (3.4% YoY). A strong rebound was also observed in Finland (+ 4.2% YoY) and Ireland (8.4% YoY). In Poland,May’s sales increased by 4.9% YoY in comparison with the previous year.

However, the market has reacted little to these reports. First, investors are more focused on global sentiment now being created outside the eurozone. Second, a large euro appreciation ahead of the ECB meeting scheduled for Thursday may be a rather risky strategy for some investors.

Surveys don’t support conservatives

Around midnight, a Survation telephone poll regarding the British elections was published. It only showed a 1% Conservative lead over the Labour party (Why are Conservative and Labour cap’d?). On May 26th-27th, a similar study suggested a 6 point lead. In mid-May, Survation's telephone research for “Good Morning Britain” was predicting an 18 percentage Conservative lead.

Moreover, in the morning YouGov updated its model. It estimates that the Tories will have 304 seats in the House of Commons, around 20 short of the majority and 30 seats below the current result. It is worth pointing out that the pound remains relatively stable despite the fact that the odds for a clear Tories majority is diminishing.

The zloty is slightly weaker

In our morning video commentary, we pointed out that the yen’s strengthening during the Asian session could hurt the Polish currency despite a fall in the yields on US Treasuries and the dollar. Shortly after the EUR/PLN rose to around 4.1950, a similar rate was also observed around midday.

The Polish currency is currently very sensitive to changes in the global economic sentiment. When it improves, the PLN will be rising to most counterparts. However, when we are dealing with an increase in risk aversion, the PLN weakens relatively quickly. This is also observed against the Hungarian forint. The PLN/HUF is around 0.3-0.4 percentage points lower than yesterday. If the risk aversion persists in the afternoon, the EUR/PLN may move above the 4.20 mark.