The deterioration in market sentiment puts pressure on the US currency, although the foundations rather suggest a longer-term appreciation. The zloty is depreciating, but the falls are still limited.
1.15 - 1.17 range
Monday's quotations started with a continuation of the downward trend on the dollar. The dollar index (DXY), which measures the relative strength of the dollar against the six main currencies, has been gradually falling since Thursday. Today, it dropped to around 94 points at around 3.00 p.m., the lowest since more than a week, when a significant appreciation after a more dovish than expected statement by the European Central Bank was observed.
A similar trend was observed in the main currency pair - the euro/dollar exchange rate (EUR/USD) tested 1.15 level on Thursday and today it tested the 1.17 boundary. Issues of improvement in the situation in the eurozone are unlikely to be the reason: today was published a relatively weak report by Ifo concerning the climate of German companies, and the issue of Italy is still relevant.
The dollar's depreciation could be explained by increased concerns about customs wars. On Friday evening, the US President threatened to impose 20% customs duties on all imported cars from the EU if the Union did not abolish its tariffs on US products. However, it seems that the market reaction that we are witnessing may be temporary - the US is both in a better economic situation and in terms of interest rate increases (positive for the currency), and the US has less to lose in the event of an open customs war (so far, most of them are just announcements).
The weakening dollar did not help the zloty this time. The Polish currency, although not much, lost in relation to its basic currencies. The euro price increased to nearly 4.34 PLN - it is already its upper limit from the last 1.5 years. There are no significant publications or events planned for this evening, therefore the zloty and dollar quotations will depend to a large extent on the quotations on the stock exchange in the US.
Futures contracts indicate an opening significantly below zero (both the main Asian and European indexes lost more than 1% each). In theory, a further worsening of the sentiment may strengthen the dollar, but given the quotations of recent days, it is not so certain (at least in the short term). However, greater risk aversion may exert additional pressure on the zloty, which could deepen losses in such a scenario.
Tomorrow's preview
At 4.00 p.m., the Conference Board will publish June's data on the US Consumer Confidence Index. The median of market expectations indicates that the level of 128 points from a month ago will be maintained. These are still levels close to the 17-year highs in February (128 points). It also unlikely that this index will deteriorate significantly in June, as the US economy is growing at a fast and stable pace, which is also confirmed by the acceleration of the expected rate of interest rate increase in the US this year (from 3 to 4). Therefore, the impact of this publication on the dollar should be limited.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
See also:
25 Jun 2018 11:59
Turkish lira after elections (Daily analysis 25.06.2018)
The deterioration in market sentiment puts pressure on the US currency, although the foundations rather suggest a longer-term appreciation. The zloty is depreciating, but the falls are still limited.
1.15 - 1.17 range
Monday's quotations started with a continuation of the downward trend on the dollar. The dollar index (DXY), which measures the relative strength of the dollar against the six main currencies, has been gradually falling since Thursday. Today, it dropped to around 94 points at around 3.00 p.m., the lowest since more than a week, when a significant appreciation after a more dovish than expected statement by the European Central Bank was observed.
A similar trend was observed in the main currency pair - the euro/dollar exchange rate (EUR/USD) tested 1.15 level on Thursday and today it tested the 1.17 boundary. Issues of improvement in the situation in the eurozone are unlikely to be the reason: today was published a relatively weak report by Ifo concerning the climate of German companies, and the issue of Italy is still relevant.
The dollar's depreciation could be explained by increased concerns about customs wars. On Friday evening, the US President threatened to impose 20% customs duties on all imported cars from the EU if the Union did not abolish its tariffs on US products. However, it seems that the market reaction that we are witnessing may be temporary - the US is both in a better economic situation and in terms of interest rate increases (positive for the currency), and the US has less to lose in the event of an open customs war (so far, most of them are just announcements).
The weakening dollar did not help the zloty this time. The Polish currency, although not much, lost in relation to its basic currencies. The euro price increased to nearly 4.34 PLN - it is already its upper limit from the last 1.5 years. There are no significant publications or events planned for this evening, therefore the zloty and dollar quotations will depend to a large extent on the quotations on the stock exchange in the US.
Futures contracts indicate an opening significantly below zero (both the main Asian and European indexes lost more than 1% each). In theory, a further worsening of the sentiment may strengthen the dollar, but given the quotations of recent days, it is not so certain (at least in the short term). However, greater risk aversion may exert additional pressure on the zloty, which could deepen losses in such a scenario.
Tomorrow's preview
At 4.00 p.m., the Conference Board will publish June's data on the US Consumer Confidence Index. The median of market expectations indicates that the level of 128 points from a month ago will be maintained. These are still levels close to the 17-year highs in February (128 points). It also unlikely that this index will deteriorate significantly in June, as the US economy is growing at a fast and stable pace, which is also confirmed by the acceleration of the expected rate of interest rate increase in the US this year (from 3 to 4). Therefore, the impact of this publication on the dollar should be limited.
See also:
Turkish lira after elections (Daily analysis 25.06.2018)
Cryptocurrencies playing on the mind of banks
Volatile fundamentals for a better sentiment? (Afternoon analysis 22.06.2018)
Rebound on the dollar (Daily analysis 22.06.2018)
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