Daily analysis 09.05.2017

The dollar has been clearly gaining value due to the capital outflow from safe havens. The likelihood of the franc’s fundamental wear-off is increasing. The zloty worked-off its recent growths. However, the risk of the PLN’s more serious overvalue against both the euro and franc remains relatively limited.

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

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

Dollar is taking initiative

The result of the French presidential election has clearly reduced risks for the eurozone, including the scenario of France leaving the eurozone. This should support the euro. However, it’s worth keeping in mind that the ECB monetary policy has been very mild. This should be taken into consideration when interpreting the limited risks for the euro. In addition, the Fed may try to accelerate the monetary tightening, which would eventually cause the dollar to be the largest beneficiary of a decrease in risk aversion.

Over the past few hours, the profitability of the US two-year treasury bonds have been testing the area of 1.34%. Nevertheless, the bonds with higher maturity have been increasing at a lower pace. This means that investors don’t believe that there will be more rate hikes in the forthcoming quarters. However, if the US data improves and the works on the fiscal changes accelerate, the long-term perspective for rate hikes in the United States would also increase.

We may assume that some investors have been trying to evaluate these processes. Over the past month, the USD/JPY has increased more than 4%. The Japanese currency is most vulnerable to the potential changes regarding the American interest rates. This is because one of the main elements of the Bank of Japan’s policy is to maintain the profitability of the Japanese treasury bonds near 0%. The difference between interest rates of the USA and Japan needs to be completely reflected by the currency exchange rate, which causes high vulnerability on the USD/JPY.

Has attitude towards franc changed?

It’s most likely that a change in attitude towards the franc may be one of the main moves after the French presidential election. Over the past few years, the Swiss currency has been a safe haven with regard to the danger of the eurozone’s collapse. Currently, this risk has been significantly limited.

We may be dealing with a slow capital outflow from the franc, as well as with an attempt to find a new level of balance between the euro and franc. Over the past few months, the EUR/CHF has been moving within the range of 1.06-1.10. It’s likely that this pair may fairly rapidly go above the 1.10 level in the near future.

The latter may also support the perspectives for the monetary policy. Monetary tightening is not expected from the ECB nor the SNB, for the time being. However, if any of these banks were to perform rate hikes, it’s more likely that the ECB would have done this sooner. This element may allow the EUR/CHF to go above the 1.10 level.

The aforementioned processes may also be positive for those who have credit denominated in the franc. If the EUR/CHF were to become stable, near the 1.10 level, this would reduce the chances of the CHF/PLN going back to the 4.00 level. Moreover, if the eurozone’s business cycle remains positive and there are no dangers for Poland’s economic growth, the EUR/CHF would most likely strengthen to the range of 3.80-3.90.

Stronger dollar

Increasing profitability of the US treasury bonds, as well as the general strength of the American currency, have caused the USD/PLN to grow up to 3.88. Moreover, the zloty wore-off by 0.02 PLN against the euro yesterday afternoon. The changes on the dollar may appear fundamental, because the current situation could be favorable for the rate hikes in the USA.

Nevertheless, the risk of a more significant work-off on the EUR/PLN remains limited. The eurozone’s political stabilization is more important for this pair than increasing expectations regarding the US rate hikes. Moreover, reduced anxieties over the eurozone’s collapse will most likely cause a global depreciation pressure on the CHF. Therefore, the franc most likely will not grow against the zloty.