Dollar below in red (Daily analysis 4.12.2018)

Negative information for the dollar. The yuan, the pound and the euro are getting stronger. A chance for calming the situation in France. The zloty depreciates a bit, but it remains relatively strong. The euro is close to 4,28-4,29 PLN boundary. Reduced inflationary pressure will maintain the MPC dovish position on Wednesday.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

Plentitude of events

The situation concerning the US Treasury bond yields seems to be the most interesting one in recent hours. Despite the good sentiment on the markets (during Monday's session in the United States), the yields on Treasury bonds declined. They were also continued during quotations in Asia (yields of US Treasury bonds maturing in 10 years fell to 2.94), which was combined with falls on the markets there.

The drop in Treasury bond yields and the fact that the yields of 2-year instruments are higher than 5-year instruments may suggest that the Fed will pause the increase in interest rates earlier than expected. The reversal of part of the yield curve of Treasury bonds (higher yields of 2-year instruments than 5-year instruments) may also be a signal of a stronger economic slowdown in subsequent years and lower inflation.

Movements on bonds are clearly negative for the dollar. Moreover, they may become a self-fulfilling forecast. The Federal Reserve will not want to risk facing the market if the pressure on lower expectations for future interest rates continues. An agreement with China also has a negative impact on the dollar. The yuan is clearly strengthening to the dollar, gaining approx. 1.5% in two days.

A set of positive information also comes from Europe. The data supports the euro and the pound. Shortly after midday, the French Prime Minister announced the suspension of the additional fuel tax, which should calm the situation in the second economy of the eurozone.

Brexit is also an interesting issue. There are a few intense days ahead of us in the British House of Commons, where the Prime Minister will defend her plan to leave the EU. The pound has been weak since the beginning of the session, but around midday, Bloomberg has published the opinion of the Advocate General of the Court of Justice that the UK can withdraw from Article 50 without the consent of 27 other EU countries.

Manuel Campos Sanchez-Bordon's opinion is not binding for the Court, but Bloomberg stresses that the Court usually makes decisions in line with this opinion. This would mean a much easier way to avoid Brexit at all if the referendum were to take place again and the British people would like to stay in the Union. The pound has clearly appreciated after this information. It may also mean that the rejection of Theresa May's plan in the House of Commons (vote on December 11th) will be perceived negatively (the risk of a disorderly Brexit will increase), but also positively, opening the way to withdraw the exit from the EU.

Stable zloty

The zloty's situation remains calm. The zloty slightly corrected the last increases, but the EUR/PLN pair is still moving close to the 4.28-4.29 boundary. Investors may be a little nervous before tomorrow's MPC meeting.

The Council's position may be relatively dovish due to the surprisingly low inflation reading for November and the lowest PMI in four years. Additionally, it seems unlikely that there will be a request for a tightening of monetary policy, as was the case in November. Lower inflationary pressure, compared to last month's NBP projection, may also be triggered by the fact that households, due to government subsidies, will probably not feel any increase in energy prices. As a result, one of the main arguments for higher inflationary pressure will no longer be valid. The next few hours will probably be relatively calm for the EUR/PLN pair, and the baseline scenario is that prices will remain close to current levels.