Mario Draghi was unable to weaken the euro, but further appreciations of the EUR/USD were a result of the sharp drop of US currency values and yields on US Treasury bonds. Influences of Hurricane Irma. The zloty remains stable in relation to most currencies, excluding the dollar. The USD/PLN pair at lows from the end of 2014.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
- No macroeconomic data which may significantly affect the analysed currencies.
Attention quickly moved to the US
Yesterday's speech from Mario Draghi was more dovish than expected. However, it did not cause a drop in the euro's value. As we suggested in Thursday's commentary, the market did not believe that recent increases in the single currency area were strong enough to change the path of quantitative easing taken by the ECB. As a result, only the statements about "volatility of the euro" and the slight downward revision of inflation forecasts for 2018 (due to the stronger currency) were not significant enough to depreciate the EUR/USD pair.
On the other hand, objective elements have occurred that continue to support the single currency area. The perspective of GDP growth for this year has been revised upward to 2.2%, which means that if the forecasts meet this will be the best time for the eurozone this decade. In addition, despite the inclusion of the plans for the path of the monetary easing, the statement’s message are at an early stage. Draghi (during the conference) said that most of the details about the QE tapering will be available in October. Therefore, it will be earlier than previously reported by Bloomberg before the meeting.
As a result, during the press conference, the EUR/USD rate increased. Currently, the highest exchange rates since the beginning of 2015 have not been a result of this afternoon’s appreciation as the euro's increase in value was reduced in the evening. The current record of the euro in relation to the dollar is due to the weakness of the USD and the strength of the EUR.
Yields slumped, and with them, chances for increases
The very weak condition of the dollar is primarily due to the collapse of US Treasury yields. For the last twelve hours, they fell by about 5-6 base points on 5 and 10-year US Treasury bonds and reached the lowest levels since November 2016.
Currently, as of September 2018, the market evaluates rate hikes at 14 basis points (0.14 percentage points), which means that the chances of any monetary policy tightening (apart from reducing the Fed's balance) in the coming year have been falling. What, however, is causing the further deterioration of the US Treasury bond yield?
It is likely the investors' reaction to Hurricane Irma, which is currently approaching the Floridian coast. The damage that it could cause may create distortions in economic indexes throughout the country or could reduce the level of optimism among consumers or businesses in the short term. This was very clear in yesterday's readings on the number of initial jobless claims. They have risen to the highest levels for more than two years due to the hurricane that hit Texas earlier.
Although similar events usually have a negative impact on the economy for the short term, and theoretically in the long term, the inflation or GDP should be even higher in the case of the absence of natural disasters. Additionally, the affected data from Q3 may flow in the main for the Fed's period. In the coming weeks, FOMC members will decide whether to keep the promise of a rate hike by the end of the year or resign from it. If the inflow data is weak, then we may face an interruption of the monetary tightening cycle in the US which will sustain negative trends in the dollar or yields on the US Treasury bonds.
Therefor, over the next few hours, the market will mainly observe the hurricane's trajectory and its hypothetical destruction in Florida. If this natural disaster is weakening, we may face a stop in the dollar's downward trend. On the other hand, if the hurricane continued to maintain its strength toward Miami, then the odds of paring some losses by the dollar would decrease.
Dollar at new lows in relation to the zloty
The national currency valuation for the past few hours has not changed much. The EUR/PLN rates remained close to the 4.25 boundary. The zloty's exchange rate in relation to the franc or the pound did not clearly deviate from the current levels within the last 24 hours. However, the Polish currency is under a slight pressure in relation to the forint. The PLN/HUF exchange rate is below the 72.00 boundary, which is 0.3 percentage points lower than it was on Wednesday.
Most of the movements are observed on the dollar. The USD/PLN pair reached 3.51 boundary today, which was the lowest level since the end of 2014. As with the overall valuation of the dollar, its condition in relation to the zloty will depend on the hypothetical impact of the hurricane that will hit Florida over the weekend. In the case of the increasing risk of serious damage, the USD/PLN pair may further deepen the recent lows.