Yen and dollar appreciate (Afternoon analysis 2.01.2019)

The new year brings serious changes in the dollar and yen valuation. The EUR/USD is within quite a big daily movement range. The zloty depreciates relatively little after weak PMI data from the Polish industry. The only exceptions are the zloty's quotations in relation to the dollar and the yen.

Pound is backfired

The first session after the New Year brings significant changes in the market. During the session in Asia, the main market indexes were clearly (1-3%) falling, which was a result of a worse PMI reading of Chinese industry than expected (49.7 points vs. expectations by 0.5 points higher). This also resulted in declines in European markets, although a significant part of the falls was pared by 3:00 p.m.

Serious changes did not omit the currency market this time. The main currency pair, i.e. EUR/USD, increased to the 1.15 boundary in the morning, and just before 3:00 p.m. it fell to about 1.1370, dropping by 1 per cent from today's highs. The dollar appreciation was accompanied by a continued increase in the value of the yen. The Japanese currency increased sharply even against the dollar, recording the highest valuation since May last year.

Better than expected PMI data from the UK industrial sector failed to protect the pound from depreciation. The most severe drop was recorded in relation to the yen. The GBP/JPY quotations have been falling steadily since the end of October. Today, they have fallen below the 138 boundary (to about 137.4, just after 2:00 p.m.), setting the lowest level since mid-April 2017. The pound also recorded a significant fall in relation to the dollar - from around 1.277 to 1.26 today.

Taking into account those serious changes in the global currency market, they did not have such a big impact on the zloty basket. Major changes were mainly related to its valuation against the globally growing dollar and yen. Although the USD/PLN exchange rate increased to 3.78 (3.73 in the morning), it was within the fluctuation range of the last two weeks. Slightly more, the zloty lost to a very strong yen - PLN/JPY quotations dropped to 28.82, the lowest level since August last year. This is also the lower quotation limit since May 2017. Permanent improvement in global sentiment, including in the equity market, should gradually weaken the yen.

In turn, the EUR/USD quotations in the light of these market changes oscillated around 4.30, recording only a slight change compared to the previous trading day. The zloty was slightly weaker due to the morning publication of PMI data from the Polish industry sector, although the changes in the zloty were largely due to external factors. The very low PMI reading (47.6 points) probably also shows a more pessimistic image and perspective for the industry than it actually is.

Tomorrow’s preview

At 2:45 p.m. ADP will publish data on employment change in the non-farm sector in the USA in December. The median of expectations indicates an increase in the number of new payrolls by 178,000. This data may give further indications on the official reading of the US Department of Labor, although the data does not always coincide (resulting, among others, from different sample size, one-off events). At 3:00 p.m., data on initial jobless claims will also be published. The number of claims submitted last week (according to the median expectations) should amount to 220,000, 4,000 more than the previous week. However, these are still the readings close to over 40 years of records; therefore, its impact on the dollar quotations should be limited, just like those from ADP. Investors will most likely focus on Friday's report of the Department of Labor, which will include, among other things, how the average hourly rate of wage has changed.

At 4:00 p.m. ISM will publish PMI data for December for the industrial sector in the USA. In the previous month, it surprised positively by its increase to 59.3 points. This is close to the top range of readings from the last 34 years. The market consensus indicates that the index will fall to 57.9 points. The decline may turn out to be slightly larger than the market expects, due to the recent equity market discount and fears of global economic growth, which could lead to a worsening sentiment of managers participating in the survey. In this case, the dollar could slightly depreciate, given the current situation with the shutdown of some federal institutions in the USA.