Daily analysis 21.11.2017

The euro is under moderate pressure due to the situation in Germany. The US dollar is also slightly strengthened on the global market, which is supported by increases in yields of the US treasury bonds. The EUR/PLN pair, thanks to good data from the country, remains close to the 4.23 boundary despite an increase in risk aversion in the region. The PLN/HUF pair at half-yearly highs.

The most important macro data (CET - Central European Time). Surveys of macro data are based on the information from Bloomberg unless noted otherwise.

• No macro data that can clearly influence the analysed currency pairs.

The situation in Germany has a limited impact on the euro

Weekend information regarding a failure to establish a government coalition in Germany is widely discussed on the market. In the short term, this isn’t a positive message for the euro as it increases political risk for the single currency area.

In general, however, the impact of recent reports from abroad on the currency market remains limited. The EUR/CHF pair is close to 1.1650 and the EUR/USD close to 1.1750. This is mainly due to the fact that there is a completely different situation in Germany than there is in France, where people were afraid that extreme groups may reach power and jeopardise further functioning of the eurozone.

In the case of Germany, the risk is marginal. The polls do not present any clear changes among society compared to what was seen during September's elections. The possible coalition combinations of the CDU/CSU with FDP, Green or SPD mean the choice between a slightly right-wing or moderately left-wing government rather than a systemic change. As a result, while current events increase the political risks and hypothetical new elections could evoke further market uncertainty in the following months, these processes should not be accompanied by concerns about the eurozone's fate.

Increasing treasury bonds in the US

Apart from the political situation in Germany, the EUR/USD may be negatively affected by the debt market instrument behaviour. The yields on US treasury bonds maturing in 2 years grew to more than 9-year highs and reached 1.75%.

The yield on the US Treasury bonds that will mature in 5-years is also rising. They reached levels close to 2.1%. Only about 5 basis points are missing in order to reach the highest levels recorded in more than 6 years. Less spectacular movements are those regarding instruments maturing within the decade, but if inflationary expectations rise, it is possible that the yields maturing in 10-years will also go up, which could support the dollar more significantly.

Apart from good macroeconomic data and wage growth, inflation expectations may also increase changes in the US tax system. Next week, the Senate is likely to vote on its version of changes in the fiscal burden on households and companies. Although a few Republican senators are still sceptical in the context of tax cuts, it is possible that the law will be passed in the upper Chamber of the US Congress, and the final version will be created as part of the work between the two chambers. This would probably be positive information for the dollar, especially with a (light) increase in risk aversion in the eurozone.

Zloty supported by data

The Polish currency remained stable despite the reports from Germany. Good macroeconomic data helped the zloty. Yesterday, the Polish Central Statistical Office (GUS) announced that October's industrial production in Poland increased by 12.3% YOY ー the most in 7 years. As wage growth accelerates, it increases the chance of a return to the discussion about rate hikes.

Jerzy Osiatyński's statement also helped to stabilize the zloty today. In an interview with Bloomberg, a member of the Polish MPC indicated the possibility of rate hikes in 2018. However, after November's press conference, chances of actual increases are limited, yet further positive data should support the zloty. This is also visible on the PLN/HUF pair, where the zloty in relation to Hungary is the most expensive that it has been in six months. When it comes to the following hours on the EUR/PLN pair, they should be quite calm and the afternoon trade should be around 4.23.