Zloty stable despite drops in shares (Afternoon analysis 23.10.2018)

Global sale of riskier assets with limited impact on the currency market, although the yen is clearly gaining. Small changes in the EUR/USD quotations help the zloty to stay in relatively good condition.

Slight fluctuation range on EUR/USD, but it is still below 1.15

Tuesday was not full of macroeconomic publications. On the broader market, however, an increase in risk aversion and the depreciation of high-risk assets, such as shares and oil. A slightly higher risk level was still observed on the currency market, where the Japanese yen was perceived as one of the "safe havens". The weak sentiment was not noticeable in the currency market.

After yesterday's depreciation of the pound and the lira, both currencies, which were under pressure recently, pared some of their losses today. In particular, the pound's quotations in relation to the dollar (GBP/USD) rose back above the 1.30 level. The euro/dollar quotations (EUR/USD) oscillated between 1.144 and 1.149 and at 3:00 p.m. remained unchanged compared to the previous day's closing time.

Given the events in the broader market, the lack of more significant drops in the main currency pair can be considered a success, although it is still around 2-month lows. However, more and more dark clouds are building up over the euro, mostly due to the EU's conflict with Italy to approve the budget, and probably slower than expected economic development of the eurozone.

The zloty remains relatively stable all the time in the context of these events - the EUR/PLN exchange rate was just below the 4.30 level for most of the day. Slight changes were also observed in relation to other main currencies. More changes were found in the case of the relation between the pound and the zloty, which pared part of the losses of the previous day. The calendar of macroeconomic publications later on in the day is practically empty, therefore the zloty's condition will largely depend on the behaviour of the main currency pair. If the weak sentiment that we are currently observing on the markets in the USA and Europe also affects the increase in the yields of US Treasury bonds and the appreciation of the dollar, the zloty may depreciate in relation to the main currencies.

Tomorrow's preview

Tomorrow, IHS Markit will publish preliminary October PMI data for industry and services for the eurozone. The market consensus points to a decline of both indexes by 0.2 points to 53 points for industry and 54.5 points for services. The condition of the industrial sector may be particularly concerning - the index based on the results of surveys among logistics managers has been gradually decreasing since the beginning of this year.

Taking into account the worsening sentiment on the global market, combined with problems around the budget and the condition of the Italian economy, the PMI index readings below expectations may further weaken the euro. At 3:45 p.m. IHS Markit will also present analogous data for the USA, although in this case, its impact on the dollar will be minimal. PMI data prepared by ISM is much more important for this economy.