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North Korea weakens dollar (Afternoon analysis 06.03.2018)

6 Mar 2018 16:18|Bartosz Grejner

The maintained relatively good market sentiment and the potential denuclearisation of North Korea worsened the US currency. The zloty benefited from this, although these were not significant changes due to fears about the MPC statement tomorrow.

EUR/USD pair above 1.24 again

During today's session, good sentiment from the previous day was observed. Decreased fears about the election results in Italy or the calming down of the message from the US on customs duties on aluminium and steel have clearly improved market sentiment today. In the afternoon, also another relatively positive message was released: North Korea is ready to enter into negotiations on denuclearisation provided that security for the current regime is guaranteed.

Therefore, the dollar started to depreciate. Recently, its appreciation was connected with a deterioration of market sentiment and its weakening combined with an increase in risk appetite. The EUR/USD quotations rose to just over 1.24 today, the highest level since February 20th.

The zloty appreciated due to the weaker dollar and sentiment improvement. The zloty gained the most in relation to the franc or the dollar. The franc exchange rate fell below 3.60 PLN for the first time since February 21st, and the dollar cost 3.37 PLN. The Swiss currency, perceived as one of the safe havens in times of increased uncertainty, has been depreciating in relation to most currencies today. However, the scale of zloty appreciation was not as large as expected, given the favourable external conditions.

Probably, this is a result of fears about tomorrow's statement and a conference after the two-day meeting of the Polish Monetary Policy Council, which may turn out to be dovish. In the following hours, there are no significant macroeconomic publications scheduled, therefore, the zloty value may be a result of movements on the dollar and share market in the US. If the rebound on the dollar and the worsening of sentiment on the US market are not observed in the following hours, the zloty may stabilize around the current levels.

Tomorrow's preview

Around midday, the MPC's decision regarding interest rates, which will almost certainly be left unchanged (reference rate of 1.5%). However, the statement and press conference will be important (4.00 p.m.). New macroeconomic projections, which may indicate a slightly slower inflation growth pace, may give arguments to MPC members to maintain a relatively dovish stance. The chances for zloty appreciation are limited.

At 2.15 p.m. ADP will publish February's data on employment changes in the non-farm sector in the USA. This data may give some guidance on the official Department of Labor's reading, which will be published on Friday. Correlation is not always positive, therefore, the impact of this data may be limited. Probably only a significant increase in the number of payrolls above 250k could strengthen the dollar. The two previous months were characterised by two increases by 242k and 234k respectively and the median of market expectations for this month indicates 195k.

6 Mar 2018 16:18|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:

6 Mar 2018 12:28

Sentiment improvement (Daily analysis 06.03.2018)

5 Mar 2018 16:24

Italian elections as burden (Afternoon analysis 05.03.2018)

5 Mar 2018 13:00

Calculating the impact's strength (Daily analysis 05.03.2018)

2 Mar 2018 16:18

Chinese role in maturing the cryptocurrency market

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