A continuation of strong EUR/USD increases is observed. The main currency pair is around 1.1800-1.1850. UK wage data is close to expectations, but the pound is being depreciated due to a number of employees' reduction. The EUR/PLN pair has been appreciating to about 4.25 PLN. The franc quotations remained stable. The dollar and the pound incur strong losses.
The most important macro data (CET - Central European Time). Surveys of the macro data are based on the information from Bloomberg unless noted otherwise.
- 2:30 p.m.: Consumer inflation (CPI) in the US. October's data (estimates: 0.1% MOM and 0.2% YOY; core inflation: 0.2% MOM and 1.7% YOY),
- 2.30 p.m.:Retail sales from the US. October's data (estimate: 0.0% MOM excluding fuels and cars +0.3% MOM).
Sharp increases of the EUR/USD pair
As recently as yesterday, we pointed out that the changes on the EUR/USD pair were not caused by surprising macroeconomic readings or a stronger reshuffling on the debt instruments market. Since the beginning of the US session, however, it was mainly the euro that was gaining in the global market. The dollar in relation to the yen or the pound remained relatively stable.
When quotations on the US trading market started, a dominance of red could be seen. According to past correlations, the weaker sentiment on shares translates into a decrease in the dollar's value and lower yields on US government bonds (lower chance of rate hikes by the Fed). In this case, it was only partially possible to justify a decrease in the dollar's value and the main currency pair's quotation to approach the 1.1800 level (the European Treasury instruments are not quoted 24 hours a day as they are in America.)
Looking at EUR/USD behaviour, a certain inconsistency of changes can already be seen during this morning's European session. The differences between the yields of the US and the eurozone's government bonds have not decreased, which should hold back EUR/USD increases. The deterioration of the eurozone's market sentiment and futures contracts on S&P 500 shouldn’t cause very strong increases on the main currency pair.
Therefore, many point out that the currency market could have been a little "ahead of" market behaviour. It is also possible that the recent long consolidation of the EUR/USD caused investors to be less cautious. Rapid increases contributed to the fast closing of declining positions and pointed to the euro's weakening as well as the rise of the dollar.
A good test for the durability of current traffic may be today's publication of data from the US. It seems that the reading's direction is not particularly important, but a direct market's reaction to this publication. If the CPI inflation breached the 1.7% YOY boundary (consensus) and this would not be accompanied by a positive response of the dollar and a correction of recent increases on the EUR/USD pair, it is possible that the market has started to play the game for bigger problems with tax changes. If the dollar should start to appreciate, we can expect a rather rapid reversal of the trend that was generated yesterday. A publication close to or lower than the consensus is unlikely to be a sufficient argument for changing current trends.
Pound pressure remained
In the morning, the British Office for National Statistics (ONS) published data from the local labour market. The most important reading was on wage changes. The average weekly wage in the last three months increased by 2.2% compared to the same period last year. This was 0.1 percent above market estimates.
After the publication, the pound slightly appreciated, but weakened later. With the euro still strong, this caused the EUR/GBP pair to be above 0.90, the highest level in a month. In addition, it is worth noting that other parameters of the British labour market were not positively surprising.
Investors are accustomed to the monthly ONS reports still dealing with strong job creation. Now, however, the number of employees has decreased by 14k (an increase of about 50k was expected). In addition, this was the worst reading in more than two years. So far, employment growth in the UK has been a very positive element that has not even been disrupted by the Brexit issue. If it turned out that the British economy has reached the "ceiling" of employment now, then we may have to face a weakening of consumption or negative trends in investment. This would be an argument for the Bank of England to keep interest rates unchanged.
The zloty on the global wave of changes
The zloty's quotations clearly follow the direction of global changes. The higher valuation of the euro against most currencies around the world also results in EUR/PLN increases and a shift of its quotations to the range of 4.24-4.25. In general, however, taking into account the scale of the euro's appreciation, this movement is not particularly strong, although the zloty also loses slightly to the forint.
The exchange rates of other popular foreign currencies, however, either remain close to yesterday's levels or are falling. The franc is close to the 3.63 PLN boundary, which is two points less than almost three years old lows. The pound, in turn, is approaching the 4.70 PLN level, while the dollar is returning below 3.60 PLN. The zloty could be more severely affected by the sharp deterioration of capital market sentiment (so far it has been rather moderate in the US). The Polish currency may also be under pressure of the higher than expected inflation in the US if the market reacts to this dollar appreciation. Recently seen for a significant period of time, the stabilization of the zloty may give way to more nervous quotations.