A real rollercoaster of moods has been observed in the market, but most currencies stayed out of its way. Rumours appeared on solving the basic problem connected with Brexit. The Turkish lira reached its lows. The zloty is relatively strong. The EUR/PLN pair close to the 4.21 boundary.
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.
Currencies remain insensitive
Strong declines in the share market do not translate into capital flow to safe havens. Probably, it was caused by the fact that investors' concerns are mainly generated in the US and currently they may have relatively limited impact on the global economy.
Moreover, during the last 24 hours, strong declines in the yields of the US Treasury bond have been observed - 11 basis points on debt instruments maturing in 10-years. In Germany, these decreases are less noticeable (around 4 basis points). Investors may fear that the prolonged falls on the US market will translate into a general sentiment deterioration and a slowdown in the tightening monetary policy's pace. However, the situation does not involve emerging markets. Therefore, the franc did not appreciate and even incurred losses in relation to the euro. The dollar is not perceived as a safe haven due to the problems in the US at the moment.
However, there are currencies which, despite this limited increase in risk aversion on the global market, are under strong fluctuations. The Turkish lira is currently testing the lowest levels in relation to both the dollar and the euro. This is connected due to high inflation in Turkey and the inappropriate monetary policy which, instead of bringing prices to their target, further stimulate their growth. In addition, a maintained large current account deficit and geopolitical uncertainty in the region are still observed. Just a year ago, the euro cost about 3.90 TRY, and now, it is less than 5.00 TRY. Therefore, it shows that the lira is in serious crisis.
Unfulfilled hope for the pound
Shortly after midnight, The Times published an article suggesting that the British Government would come up with a "quick fix" solution to prevent the so-called 'hard border' between Ireland and a part of the UK, Northern Ireland, after Brexit.
However, the article does not contain any details regarding this. Until midday, there were no ideas about how to solve one of the most problematic issues connected with the UK's departure from the EU. As a result, after the GBP/USD increased to around 1.42 in the morning, currently, it is 50 pips lower, or even slightly less than before The Times report.
It is difficult to say what will really be, which would, on the one hand, respect the integrity of the United Kingdom and, on the other hand, allow the free movement of goods or workers across the border. Until these solutions are disclosed and accepted by Brussels, the positive impact on the pound will remain limited.
Favourable zloty situation
The zloty belongs to a group of currencies (including the Chilean peso, the Korean won and the Israeli shackle) which do not react negatively to falls in the US market. The Polish currency, apart from its relatively comfortable geographical location and the lack of strong external imbalances, may also be supported by the expected political warming on the Warsaw-Brussels line.
As a result, currently, there are no strong threats for the zloty. Only a very serious global sentiment deterioration, combined with a clear flow of capital to safe havens (the franc), could seriously harm the zloty. Therefore, stabilisation of quotations close to current levels remains as the baseline scenario.
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.
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27 Mar 2018 16:01
The dollar appreciates (Afternoon analysis 27.03.2018)
A real rollercoaster of moods has been observed in the market, but most currencies stayed out of its way. Rumours appeared on solving the basic problem connected with Brexit. The Turkish lira reached its lows. The zloty is relatively strong. The EUR/PLN pair close to the 4.21 boundary.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
Currencies remain insensitive
Strong declines in the share market do not translate into capital flow to safe havens. Probably, it was caused by the fact that investors' concerns are mainly generated in the US and currently they may have relatively limited impact on the global economy.
Moreover, during the last 24 hours, strong declines in the yields of the US Treasury bond have been observed - 11 basis points on debt instruments maturing in 10-years. In Germany, these decreases are less noticeable (around 4 basis points). Investors may fear that the prolonged falls on the US market will translate into a general sentiment deterioration and a slowdown in the tightening monetary policy's pace. However, the situation does not involve emerging markets. Therefore, the franc did not appreciate and even incurred losses in relation to the euro. The dollar is not perceived as a safe haven due to the problems in the US at the moment.
However, there are currencies which, despite this limited increase in risk aversion on the global market, are under strong fluctuations. The Turkish lira is currently testing the lowest levels in relation to both the dollar and the euro. This is connected due to high inflation in Turkey and the inappropriate monetary policy which, instead of bringing prices to their target, further stimulate their growth. In addition, a maintained large current account deficit and geopolitical uncertainty in the region are still observed. Just a year ago, the euro cost about 3.90 TRY, and now, it is less than 5.00 TRY. Therefore, it shows that the lira is in serious crisis.
Unfulfilled hope for the pound
Shortly after midnight, The Times published an article suggesting that the British Government would come up with a "quick fix" solution to prevent the so-called 'hard border' between Ireland and a part of the UK, Northern Ireland, after Brexit.
However, the article does not contain any details regarding this. Until midday, there were no ideas about how to solve one of the most problematic issues connected with the UK's departure from the EU. As a result, after the GBP/USD increased to around 1.42 in the morning, currently, it is 50 pips lower, or even slightly less than before The Times report.
It is difficult to say what will really be, which would, on the one hand, respect the integrity of the United Kingdom and, on the other hand, allow the free movement of goods or workers across the border. Until these solutions are disclosed and accepted by Brussels, the positive impact on the pound will remain limited.
Favourable zloty situation
The zloty belongs to a group of currencies (including the Chilean peso, the Korean won and the Israeli shackle) which do not react negatively to falls in the US market. The Polish currency, apart from its relatively comfortable geographical location and the lack of strong external imbalances, may also be supported by the expected political warming on the Warsaw-Brussels line.
As a result, currently, there are no strong threats for the zloty. Only a very serious global sentiment deterioration, combined with a clear flow of capital to safe havens (the franc), could seriously harm the zloty. Therefore, stabilisation of quotations close to current levels remains as the baseline scenario.
See also:
The dollar appreciates (Afternoon analysis 27.03.2018)
Waiting for signals (Daily analysis 27.03.2018)
Stable zloty (Afternoon analysis 26.03.2018)
Sentiment improves (Daily analysis 26.03.2018)
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