Another signal that proves the cooldown of the economic situation in the common currency area reached the market - German Ifo. The index fell to over a year's lows. High yields on the US debt put emerging market currencies under pressure. The zloty remains weak.
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.
Ifo failed to meet expectations
The fact that the yields of the US Treasury bonds maturing in 10-year did not exceed the 3.00% level allowed to halt the upward trend in the US currency. The EUR/USD pair stabilised close to 1.2200 boundary, but there is still some negative rather than positive news for the main currency pair.
The weak German Ifo index presenting business climate is one of the negative pieces of information. The overall index, taking into account both the current situation and the expectations for the next 6 months, has decreased to more than annual lows. This, of course, is not favourable for the euro.
It may be interesting that there is a considerable difference between the current and future situation. This is particularly the case for industry and service, which has been included in projections since this month. The current industry condition is close to nearly long-term highs, but the future one has already reached the level of two-year lows.
It is hard to say whether the pessimistic scenario will come true or if it is simply forced by the recent global trade conflicts. However, the market is more focused on the future rather than on the past. ECB members will also want to assess the economic perspectives at their meeting on Thursday. It seems that this assessment should be unbeneficial for the euro (weaker PMI and Ifo, limited inflationary pressure). Therefore, the main currency pair may be under pressure due to both a slightly weaker euro and a stronger dollar.
Emerging countries' currencies under pressure
The dollar's appreciation in the global market and the yields of the US Treasury bonds approaching 3% generate a clear pressure on the currencies of emerging markets.
Over the last 5 sessions, the Mexican peso lost almost 5% compared to the dollar. In the case of this currency, political issues also play a significant role (an increasingly likely victory for the left-populist candidate in the July presidential elections), however, the Colombian peso and the South African rand lost around 3% of their GDP.
Slightly smaller drops are observed in the zloty (above 2%) and the Hungarian forint or Czech koruna (around 1.7%). On the other hand, less significant decreases are observed in currencies which benefited from the good economic situation to a limited extent - the Israeli shekel or the Chinese yuan are cheaper by less than 1%. In turn, the Turkish lira, which was depreciating for months, remained stable compared to last Tuesday's closing due to the scheduling of early elections in Turkey (lower political risks in subsequent quarters may favour a more conservative monetary policy and therefore help the lira).
However, the changes in the currency market cannot be perceived as panic sales. It seems that more anxiety may appear when the yields of treasury bonds continue to grow strongly and the instruments maturing in 10-year will significantly exceed the 3.00% level.
Stabilisation on the market in threat?
The zloty remained weak given last week's performance. The EUR/PLN pair is close to the 4.20 level. The dollar, in turn, is close to the highest levels in three months. Although yesterday there was a strong movement on the zloty, taking into account the behaviour of other emerging currencies, there has been no panic on the Polish market so far.
Only further increases in expectations on future interest rates in the USA may result in a wider flow of capital to the dollar (see previous paragraphs). Then, the dollar can cost 3.50 PLN or more. Thursday's ECB meeting could also support a hypothetical move, especially if the bank's members were worried about the slowdown in the eurozone's economic situation and therefore, suggested a slower exit from quantitative easing.
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23 Apr 2018 14:43
Euro the most expensive in over a month (Afternoon analysis 23.04.2018)
Another signal that proves the cooldown of the economic situation in the common currency area reached the market - German Ifo. The index fell to over a year's lows. High yields on the US debt put emerging market currencies under pressure. The zloty remains weak.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
Ifo failed to meet expectations
The fact that the yields of the US Treasury bonds maturing in 10-year did not exceed the 3.00% level allowed to halt the upward trend in the US currency. The EUR/USD pair stabilised close to 1.2200 boundary, but there is still some negative rather than positive news for the main currency pair.
The weak German Ifo index presenting business climate is one of the negative pieces of information. The overall index, taking into account both the current situation and the expectations for the next 6 months, has decreased to more than annual lows. This, of course, is not favourable for the euro.
It may be interesting that there is a considerable difference between the current and future situation. This is particularly the case for industry and service, which has been included in projections since this month. The current industry condition is close to nearly long-term highs, but the future one has already reached the level of two-year lows.
It is hard to say whether the pessimistic scenario will come true or if it is simply forced by the recent global trade conflicts. However, the market is more focused on the future rather than on the past. ECB members will also want to assess the economic perspectives at their meeting on Thursday. It seems that this assessment should be unbeneficial for the euro (weaker PMI and Ifo, limited inflationary pressure). Therefore, the main currency pair may be under pressure due to both a slightly weaker euro and a stronger dollar.
Emerging countries' currencies under pressure
The dollar's appreciation in the global market and the yields of the US Treasury bonds approaching 3% generate a clear pressure on the currencies of emerging markets.
Over the last 5 sessions, the Mexican peso lost almost 5% compared to the dollar. In the case of this currency, political issues also play a significant role (an increasingly likely victory for the left-populist candidate in the July presidential elections), however, the Colombian peso and the South African rand lost around 3% of their GDP.
Slightly smaller drops are observed in the zloty (above 2%) and the Hungarian forint or Czech koruna (around 1.7%). On the other hand, less significant decreases are observed in currencies which benefited from the good economic situation to a limited extent - the Israeli shekel or the Chinese yuan are cheaper by less than 1%. In turn, the Turkish lira, which was depreciating for months, remained stable compared to last Tuesday's closing due to the scheduling of early elections in Turkey (lower political risks in subsequent quarters may favour a more conservative monetary policy and therefore help the lira).
However, the changes in the currency market cannot be perceived as panic sales. It seems that more anxiety may appear when the yields of treasury bonds continue to grow strongly and the instruments maturing in 10-year will significantly exceed the 3.00% level.
Stabilisation on the market in threat?
The zloty remained weak given last week's performance. The EUR/PLN pair is close to the 4.20 level. The dollar, in turn, is close to the highest levels in three months. Although yesterday there was a strong movement on the zloty, taking into account the behaviour of other emerging currencies, there has been no panic on the Polish market so far.
Only further increases in expectations on future interest rates in the USA may result in a wider flow of capital to the dollar (see previous paragraphs). Then, the dollar can cost 3.50 PLN or more. Thursday's ECB meeting could also support a hypothetical move, especially if the bank's members were worried about the slowdown in the eurozone's economic situation and therefore, suggested a slower exit from quantitative easing.
Subscribe to our currency newsletter
See also:
Euro the most expensive in over a month (Afternoon analysis 23.04.2018)
Stronger dollar, weaker zloty (Daily analysis 23.04.2018)
Swiss currency under pressure (Daily analysis 20.04.2018)
Franc is getting stronger (Daily analysis 17.04.2018)