The euro continues to appreciate in relation to the dollar despite the growing chances of further rate hikes in the US. The EUR/CHF reaches new 3-year records. Oil prices rise due to cold weather in North America and supply disruptions. Zloty benefits from good sentiment. The euro near the 4.1900 boundary and the franc is testing the 3.56 PLN level, and the dollar is approaching 3-year lows.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
- 4:00 p.m.: US consumer sentiment index according to the Conference Board (estimate: 128 points).
Dollar and franc remained weak
Post-holiday quotations on the FX market show a continuation of wider trends. The EUR/USD is approaching approximately 1.1900 during the morning trading season. This is partly due to the dollar's weakness as well as the strength of the euro, which is very visible, especially in relation to the franc. The EUR/CHF breached the 1.1750 boundary and is at the highest level since the second half of January 2015.
The weakness of the Swiss currency has been justified and the causes have been known for many months. Maintaining an extremely accommodative monetary policy, combined with possible interventions to weaken the CHF, does not encourage the purchase of this currency. In addition, serious political threats in the eurozone have declined (so far the market is not concerned with Italian elections), which have significantly reduced the franc's attractiveness as a safe haven in the case of the break-up of the single currency area.
The dollar's weakness is supported by fewer arguments. While US inflation at the end of this year was below expectations, investors in the debt market clearly believe in the further tightening of the monetary policy. Since September lows, the yields on 2-year Treasury bonds have increased by 60 basis points to 1.92% (the highest since September 2008). The market indicates almost 2.5% increases by 0.25 points each (61 basis points) until the end of next year. The spread between the 10-year US and German bonds is also close to six-month highs. However, this does not protect the US currency from further depreciation.
The dollar’s dives, unlike the franc’s, have less fundamental arguments, and the US dollar's detachment from future interest rate market valuation is likely to be temporary.
Brent oil the highest since May 2015
When crude oil quotations opened yesterday, strong increases in oil prices could be observed. Brent cost 67 USD per barrel and WTI was close to 60 USD. These were the highest levels since May and summer 2015, respectively.
The main reason for the increase in this energy source by 2-3% was the oil pipeline explosion in Libya. It is worth noting that the events in Libya limit supply by around 100k barrels per day. This, with the overall output at a level of less than 100 million, means a mere 0.1% supply reduction is had. However, reactions from investors showed that the reduction stocks in recent quarters, as well as the OPEC's maintained reduction in production output, cause more significant nervousness in oil quotations, even in the case of minor production disruptions.
High Brent and WTI quotations also maintain ongoing cold weather forecasts in North America. However, US fuel oil (diesel) stocks are 15% lower than they were a year ago. This also causes tensions in oil and fuel markets. As a result, oil could remain relatively expensive for the short term.
Dollar and franc close to three-year lows
The global weakness of the franc and the dollar combined with the relatively good condition of the zloty in relation to the euro, means that the US currency is at near 3-year lows and the franc is only 0.2 PLN above the level of 3.54, which was its price the day before the franc's peg to the euro was released in mid-January 2015.
In the afternoon, apart from the readings on consumer sentiment, no important publication of macroeconomic data has been scheduled. The end of the session on the gold market will likely depend on the sentiment of New York's floors. If there is not much change, the zloty should remain strong to most major currencies.