Reports from Catalonia worsen the sentiment in the market. The pound depreciated after the weakest retail sales data in five months. Despite the worsening sentiment, the zloty remained relatively stable.
Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.
- 2:30 p.m.: Initial jobless claims in the US (estimate: 240k).
On Thursday morning, trade on the currency market started relatively calmly. The dollar continued to decline slightly as the EUR/USD quotations increased to 1.1822, the highest level since Monday. However, the market sentiment has been deteriorated by reports that Catalonia could declare its independence if the government in Madrid doesn’t agree to discuss the situation.
As a result, risk aversion has increased very rapidly. In just a few minutes, almost 1% lost indexes on the main European market. In fact, crude oil prices also decreased. In times of increased uncertainty, there is a noticeable escape observed to assets that are considered as safer. In the context of reports from Catalonia, gold and the Swiss franc were appreciating.
While tensions between the Madrid Government and Carles Puigdemont, the President of Catalonia, seem to be intensifying, the probability of the conflict's escalation threatening the eurozone's stability should remain limited. The Spanish Government, in response to Puigdemont's ultimatum, announced that it would proceed with the process of taking direct control of Catalonia if its authorities did not abandon their desire to declare independence.
Therefor, in the next few trading hours, market sentiment is likely to improve. The calendar of scheduled events is also limited today, which may decrease further fluctuations. However, afternoon trading may bring relatively more volatility when US investors become more active.
At 10:30 a.m., The Office for National Statistics (ONS) published much worse than expected data in September on retail sales for the UK. Although an increase of 1.2% was recorded in comparison with September last year, it was the lowest since May. A depreciated retail sales level in September may have a negative impact on the economic growth pace and, as a result, read below expectations. Today's data may evoke some doubts about rate hikes, taking into account the slower pace of retail sales and falling real wages for British people.
The zloty remained stable, but the market has not been helpful
Together with the weaker sentiment caused by the tensions in Catalonia and Spain, we could observe a dominance of the Polish zloty's sellers around publication time. In recent months, the zloty has been relatively sensitive to changes in market sentiment, in particular to its deterioration. The Polish currency may be supported by positive data published yesterday (especially in the case of retail sales), but the correction in the equity market may have a negative impact on its valuation.
The zloty's rate, in relation to the euro, remained near yesterday's closing level (around 4.2350), similarly to the dollar. The globally appreciating franc was approx. 0.2% more expensive in relation to the zloty today. However, it significantly depreciated the pound which was under weak sales data pressure. For one unit of British currency, we paid the least since September 12th - today the GBP/PLN rate fell below 4.72. It seems that, in the context of the uncertainty around the Brexit process and today's data, the pound will have little reason to pare some losses and it may remain under pressure later in the day.