Daily analysis 22.09.2017

22.09.2017 12:43|Marcin Lipka

The new PMI index records for Germany and France support the European currency. The EUR/CHF breach 1.1600 level. Theresa May's speech in Florence was important for the pound. The zloty was supported by comments of Eugeniusz Gatnar from the Polish MPC. The EUR/PLN close to the 4.27 boundary.

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

  • 3.15 p.m.: PM Theresa May's speech in Florence on Brexit,
  • 3.45 p.m.: Publication of the industrial and service PMI index for the US (estimates: 53 points and 55.7 points, respectively).

Dollar under pressure again

Yesterday's afternoon on the currency market was quite surprising. Almost every hour we could observe the USD weakening. Initially, that could be explained by a correction in the movement following Wednesday's Fed decision, small drops on the market or yields of debt instruments, or a number of opinions appearing in the news agencies on the Korean Peninsula.

However, exceeding the 1.1950 level on the EUR/USD shows that the attitude towards the dollar remains negative despite the fact that the bond market still receives Wednesday's Federal Reserve statement as hawkish. The first hours of the European session are already under the euro's dictation, which pushed the EUR/USD into the 1.2000 levels. In this case, support was received from a record high and significantly higher forecasts of PMI reading from the eurozone.

September's PMI in France, which connects the services and industry sectors, increased to the level of 57.2 pts. These records haven't been reached for 76 months and the index has exceeded the highest estimate from a consensus by Bloomberg by as much as 0.8 pts.

In a commentary prepared for IHS Markit data from France, economist Alex Gill wrote that the growth rate of production and new orders reached almost 6.5-year highs. In addition, business sentiment for the next 12 months is clearly above the long-term trend, which may suggest that the French economy will continue to improve.

A similar scale of positive surprise was also observed in the readings from Germany. The PMI index for the industry, as well as the index that combines industry and services, increased to 77 monthly highs, reaching 60.6 pts and 57.8 pts respectively. As in the case of France, none of the economists surveyed expected such a good reading and the consensus was roughly 2 pts below the actual figures.

In the report, IHS Markit particularly emphasises a very good situation on the labour market. The pace of creating new workplaces has been the best in the industry for over 6 years. In addition, the future condition of German business has risen to 4-month highs and has been the second best reading since 2012, i.e. since the introduction of this measure. According to IHS Markit, this level of the PMI index suggests a GDP growth in the third quarter of 0.7 percentage points QOQ.

The information coming from Germany or France gives more arguments to the ECB supporters in favour of a faster exit from monetary easing. They are, therefore, also positive for the euro, which, given the rather weak dollar, has pushed the EUR/USD to 1,2000 level.

Weaker franc and May's speech

Apart from events on the euro or the dollar, it is also worth drawing attention once again to the franc's weakness. The EUR/CHF breached the 1.1620 level before midday. This is the highest level of this pair since the second half of January 2015.

The sell-off of the Swiss currency on the global market also results in CHF/PLN declines around 3.68. Maintaining a good economic situation in the area of ​​the single currency. This connected with the exit from QE by the ECB should maintain the appreciation trend on the EUR/CHF. It is also becoming increasingly probable that the scenario of the euro's valuation against the franc will be revalued around the 1.20 boundary, i.e. to a level at which SNB's exchange rate was released less than three years ago.

The afternoon (around 3:15 p.m.) can be important for the pound today. In the meantime, the British Prime Minister Theresa May's speech in Florence is due to start. Already a few days ago, the Financial Times reported that it could suggest a much milder approach to the issue of Brexit conditions, including the payment of the EU contribution up to 2020. The more concessions from London (the rights of immigrants, the long transition period, attitude to the EU Court of Justice) the greater the chance that the pound will end this day well above its current level.

This time, the zloty received support from the Polish MPC

The second part of yesterday's session was good for the zloty. The EUR/PLN ended the day close to the 4.27 boundary, while the PLN/HUF exceeded the value of 72.50, i.e. the highest level in two months. This was primarily a result of the hawkish comments from the Polish MPC member Eugeniusz Gatnar.

In an interview for Reuters, he said that, "If wage pressure rises with my expectations and inflation approaches the target, I expected that interest rates will rise in the first quarter of next year". Although Gatnar has repeatedly presented a somewhat more restrictive approach than consensus, the strong hawkish statement, combined with good data from the national economy, have given a market signal about the possibility of actually raising interest rates earlier. The next hours for PLN should not bring any major changes. However, it is possible that the downward pressure on the franc, the CHF/PLN will drop to the lowest levels since the second half of January 2015, and the pound will return above the 4.85 boundary, if a mild Brexit is suggested in PM Theresa May's speech.

 


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