A change in market sentiment related to the coronavirus - market indexes are losing; the yen, the franc and the dollar appreciate. The zloty starts to depreciate due to unfavourable market conditions: the USD/PLN exceeds 3.92 for the first time since the end of November.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
- 2:30 p.m.: Consumer inflation in the USA in January (core index estimates: 2.2% year-on-year, 0.2% month-on-month).
- 2:30 p.m.: Number of submitted initial jobless claims in the USA last week (estimates: 210k).
Supply pressure on the zloty may increase
After reaching new records by the main European and US market indexes, market sentiment worsened late last night. This is primarily the result of a review of the coronavirus-related data on morbidity and mortality rates in China. They showed a strong increase (by about 45%, i.e. by 15 thousand) compared to earlier data on the number of cases that gave hope of stopping the spread of the virus. A change in methodology may suppress these hopes a little, but only the following days will show whether the growth of new cases is increasing or not.
A change in sentiment in the broader market increased the risk aversion during the Thursday session, which resulted in greater demand for "safe havens". Gold, the franc or the yen were clearly appreciating. We did not observe any further strong increases of the dollar until midday, although the US currency is still in very good condition. The main currency pair, i.e. the EUR/USD, fell to about 1.0865 yesterday evening, the lowest level since May 2017, and today at midday it oscillates around this level.
Market events, including recent negative revisions of the number of identified coronavirus cases, support the dollar - and will support it if the spread of the virus is not contained. An additional factor supporting the dollar, especially in relation to the euro, is the weak data on eurozone's industrial production from the back of the year. The European industrial sector started the new year from a much lower level than expected, and the virus from China only worsens the prospects for a potential recovery in the sector. This reinforces the argument for maintaining a weaker euro against the dollar in the coming weeks, especially in the context of good data from the US economy.
A globally stronger dollar is not a favourable factor for emerging country currencies (EM), including the zloty. Deterioration of sentiment in the broader market also suggests that supply pressure on EM currencies and the zloty may increase. The positive sentiment has kept the Polish currency's quotations within a limited fluctuation range, but this may shift and have a negative effect on the zloty in the following days if the negative sentiment is maintained.
The EUR/PLN exchange rate oscillated around 4.26 in the afternoon, the globally stronger franc brought the CHF/PLN pair back above 4.00, and the USD/PLN reached 3.92 for the first time since late November. Apart from the reports on the virus, which may strongly change the market sentiment and thus affect the zloty, the publication of consumer inflation (CPI) in the US will be an important event today. A higher-than-expected reading of core inflation (2.2% year-on-year and 0.2% month-on-month) may increase the demand pressure on the dollar and also weaken the zloty's basket slightly.