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Dollar goes up in green (Afternoon analysis 9.10.2018)

9 Oct 2018 15:37|Bartosz Grejner

Another day for dollar appreciation. The EUR/USD quotations fell to nearly 1.14. The deterioration of sentiment also affects the zloty - the Polish currency is only about 1.5% of the lowest value against the dollar since 1.5 years.

Euro under pressure

During Tuesday's session there was further worsening of the global sentiment. Weak sentiment strongly depreciated the stock market, and with greater risk aversion strengthened the dollar again. The main currency pair, i.e. EUR/USD, today set a new lowest level in 1.5 months, falling to about 1.143.

Investors are still concerned about the ongoing problems in Italy. Italy's growth forecasts in the budget are too optimistic, much higher than those published by the International Monetary Fund. Although there is a limited likelihood of a deeper Greek-style crisis, the prolonged budget dispute with the European Commission will be a burden on the market as a whole.

The US currency is the winner in all this turmoil. Only two weeks ago the euro was worth 1.18 USD. Today it is already worth about 3% less. It should not be ruled out that the stock market may "push" the euro slightly upwards. However, the high growth pace of the USA and the progressing monetary tightening there, in the context of the eurozone and the increasingly evident slowdown in the development pace, allows us to suggest that the dollar will gradually gain in value.

The dollar appreciation and weak global sentiment are most often a bad combination for the zloty. The USD/PLN exchange rate rose to approx. 3.78 today, which is only slightly more than 1.5% from nearly 1.5-year highs. If we do not observe a slowdown in the pace of global dollar appreciation, this level may be reached quickly.

Tomorrow's preview

Before midday (10:30 a.m.), the Office for National Statistics (ONS) will publish August data from the British economy. Industrial production growth has been gradually slowing down since March this year. At that time it was 2.9% year-on-year, while in July it was only 0.9%, recording the fourth consecutive month of its slowdown. The median of market expectations indicates minimal growth in August - to 1.0% and the maintenance of the main component - manufacturing production - at the level of 1.1%.

At the same time, the ONS will present foreign trade data. The July figures came as a positive surprise, showing a deficit of 9.97 billion GBP, 1.8 billion lower than market expectations, and the lowest since June 2016. The market consensus points to an increase to 10.9 billion GBP in August.

Positive data could strengthen the pound a little, but the effect may be short-lived. In the current situation, the pound market is largely driven by Brexit reports and global sentiment. The lack of a clear positive message about the UK leaving the EU, the internal problems of Prime Minister Theresa May's cabinet and the global increase in risk aversion are likely to prevent the pound from appreciating. Its price expressed in the dollar is currently around 1.3 USD and is likely to oscillate around this level in the short term.

9 Oct 2018 15:37|Bartosz Grejner

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:

9 Oct 2018 12:54

Problems in Italy and cuts in estimates (Daily analysis 9.10.2018)

8 Oct 2018 15:26

Euro again under pressure (Afternoon analysis 8.10.2018)

8 Oct 2018 11:48

Italian games and German data (Daily analysis 8.10.2018)

8 Oct 2018 10:32

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