Daily analysis 25.09.2017

The euro loses its value after the elections in Germany and the Ifo readings are slightly worse than expected. UK rating downgraded may reduce the chances of pound's appreciation. Minor changes on the zloty during the morning trading. The EUR/PLN pair 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.

• 2.30 p.m.: Speech by William Dudley, President of the Federal Reserve Bank of New York,
• 3 p.m.: Speech by the President of the ECB, Mario Draghi,
• 6.40 p.m.: Speech by Charles Evans, President of the Federal Reserve Bank of Chicago.

Elections and the Ifo

From the beginning of the day, investors are trying to assess the impact of German elections on the euro's valuation. In the morning, the EUR/USD pair was traded in the range of 1.1930, which meant levels of approx. 20 pips below Friday's closure. At the opening of the European session, we also had very slight changes on German bonds.

However, when we started to approach the midday trade, the EUR/USD fell below the 1.1900 boundary and the yield of 10-year German treasury bonds started to fall noticeably. In the morning they were even below the limit of 0.40% so 5 core points less than around 9.00 a.m.

On the one hand, this may mean that the expected future Bundestag coalition (CDU/FDP/Green) will not want to move towards greater integration of the eurozone (e.g. common budget, the Finance Minister), which will make German bonds more attractive again and will increase the risk of stability in the eurozone in times of crisis.

However, it cannot be ruled out that today's reaction is slightly too nervous, and the "Jamaican" coalition does not have to worse for the single currency area than the previous alliance CDU/SDP. Additionally, the movement on bonds began after the publication of slightly worse than expected Ifo results (115.2 vs. 116.00). Slightly lower was the component of manufacturing production, although it is still relatively close to many years of highs. It is also worth noting that the movements on EUR/CHF are very limited, which does not indicate an increase in concerns about the stability of the euro area.

UK credit rating downgraded

The lack of details on the transition period in Britain's relations with the EU in Theresa May's speech in Florence caused a slight depreciation of the pound on Friday. However, the much deeper movement was observed just before the closing of Friday's trade. The GBP/USD has fallen to approx. 1.3450 after Moody's downgraded the UK rating from Aa1 to Aa2.

The agency has mainly drawn attention to the worsening of the fiscal outlook. Moody's expects that the public finance deficit will remain between 3.0 and 3.5% of GDP in the coming years, contrary to government plans for its gradual reduction to value below 1%. According to the agency, already in 2009, the debt to GDP is expected to reach 93%. The second reason for this reduction is the challenge of exiting the EU, i.a. due to foreign trade.

After the initial negative reaction of the pound before the weekend break, today's quotations are no longer different from those before Moody's decision. However, in general, downgrading should not be beneficial for sterling and may, at least temporarily, reduce its growth potential even if the Bank of England maintains a relatively hawkish position or slightly better data from the British economy.

Calm on the zloty

The zloty practically did not react to the election results in Germany. The EUR/PLN pair remains close to the 4.2700 boundary. Moreover, the quotations of the national currency in relation to the Hungarian and the Swiss currencies are close to those observed before the weekend. However, the dollar is slightly more expensive, although it is difficult to say whether it is a result of the elections in Germany or a little weaker Ifo and speculation about the introduction of tax cuts in the US.

In the afternoon, we may deal with a slightly greater volatility due to speeches of central banks' representatives (Dudley from Fed at 2.30 p.m., Draghi from the ECB at 3.00 p.m.). Generally speaking, given that in last week the statement from the US monetary authorities was quite clear and the fact that the ECB has one month to the next meeting of the European Central Bank probably no fundamental change in the message from both institutions is to be expected. The impact of these events should therefore not be sustainable. It is possible that the zloty will finish the session not far from the current levels.