Media reports state that despite the stricter rhetoric, the US and China are moving towards an agreement and the withdrawal of duties. The dollar's exchange rate is practically unchanged, but the pound is appreciating due to the expectations that the Conservatives will win the elections. The British currency has been the most expensive in relation to the euro since May 2017. Stable dollar and positive sentiment on the market support the Polish currency basket. The EUR/PLN exchange rate returns below 4.28 PLN.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
- 2:15 p.m.: Change in employment in the non-farm sector in the USA in November according to ADP (estimates: increase by 135k).
- 4:00 p.m.: ISM index of the US service sector in November (estimates: 54.5 points).
Dollar awaits data from the labour market
After Monday's slightly higher final PMI readings on the eurozone manufacturing sector in November, there were also hopes for slightly better service sector data. Today's IHS Markit publications have not failed those expectations. The eurozone's PMI service index was 0.4 points higher than preliminary data, which resulted in a 0.3 point increase in the aggregate PMI index for both sectors. Although the changes are not significant, they confirm the general tone of recent weeks' data suggesting that the economic "bottom" has been reached, and we are in the middle of a (slow) return to growth.
This is good news for the eurozone economy, but the market's response to the data was limited. Investors are now mainly interested in reports on international trade, and the beginning of the week was not optimistic in this respect. The US has announced the return of duties on steel imports from Argentina and Brazil and potential duties on luxury goods from France. President Donald Trump suggested that the conclusion of the agreement could take longer than the date of the US presidential election (November 2020). These factors were not positive for the market and caused a strong increase in risk aversion. The White House administration will not hesitate to use customs duties in its international policy, and the market has somewhat awakened from the idyllic atmosphere we have seen in previous weeks.
Today, Bloomberg has published information that has practically reversed this negative tone by almost entirely. According to the report, both sides of the conflict are coming closer to an agreement and the withdrawal of customs duties. This triggered a return of optimism to the market. The main market indexes were appreciating again, but the losses incurred on Monday have not been reversed yet. However, the reaction in the case of currency quotations was very limited. The dollar remained practically unchanged compared to yesterday's level. The EUR/USD exchange rate was still below the 1.11 boundary and amounted to approx. 1.1070.
Pound appreciates before the elections
Much more substantial changes were observed in the case of the pound. With the upcoming elections, the pound's fluctuations are intensifying. The exchange rate of the popular "cable", i.e. GBP/USD pair, rose to about 1.3090, reaching its highest level since the first week of May this year. Even greater changes were noted in the EUR/GBP pair, whose exchange rate fell to around 0.8460 in the afternoon, making the pound the most expensive against the euro since May 2017. This is due to the expectations that the Conservative Party will win the elections, which opens the way to an ordered Brexit. It is the baseline scenario for the market. Moreover, it is already included in the value of the pound, although there is still a significant element of uncertainty that may cause considerable fluctuations to be observed until the election and after the announcement of the results.
Data from the USA with impact on the zloty
Limited changes in the dollar's quotations, combined with today's positive sentiment on the equity market, contributed to a slight strengthening of the zloty's basket. In the afternoon, the EUR/PLN exchange rate fell back below 4.28, the CHF/PLN pair tested 3.90 boundary and the USD/PLN pair 3.86 level. The biggest changes were observed in the case of the GBP/PLN pair, whose exchange rate rose to nearly 5.06, revoking practically the entire loss incurred during the Monday session. The zloty basket may undergo an increase in volatility in the second part of the day when ISM data for the US services sector will be published. Monday's reading of the ISM manufacturing sector activity index failed to meet the market expectations, and if service data turn out to be lower than consensus, a slightly weaker dollar could additionally support the zloty. However, fundamental changes are not to be expected. We can wait for such changes until Friday, when the report on the labour market in the USA will be published, which may cause more significant fluctuations in the dollar's quotations.