The depreciation on the stock and bond market puts the zloty under pressure. The weakening of the Polish currency may be deepened tomorrow, after a press release and statement of the ECB.
Dollar the highest since 3.5 months
During today's session, a continuation of the sentiment deterioration on the market has been observed from yesterday afternoon. The main market indexes were clearly depreciating, which, combined with the increased yields of the US Treasury bonds put pressure on emerging currencies. In such circumstances, capital flows from assets perceived as riskier to more secure and increasingly profitable bonds, e.g. in the US.
Such a scenario was most often bad for the zloty and the current falls are nothing special. It should be remembered the Polish Monetary Policy Council's dovish attitude towards the interest rates (their increase is not expected). This is opposite to the action of the US Federal Reserve, which is likely to raise its rates three times or more this year.
Today, the euro's exchange rate rose PLN 4.23 PLN, the highest level in a month. Only 0.02 PLN are missing for EUR/PLN to reach its six-month highs. On the other hand, the dollar increase slightly above 3.47 PLN meant that the US currency unit cost the most since January 11th. The zloty was not under pressure only in terms of its relation to the main currencies - it was also weaker against the forint. The PLN/HUF pair fell to 74, which meant that the zloty was the cheapest in relation to the Hungarian currency in 20 days.
The calendar of scheduled publications for the rest of the day is limited, therefore the quotations on the foreign exchange market will be more influenced by the current sentiment. If it does not change significantly during the afternoon, when investors from the USA become more active, the zloty's quotations may stabilize around the current levels. Taking into account the high volatility of the market today, a response in the evening and the improvement of the global sentiment may slightly improve the valuation of the zloty's basket.
Tomorrow's preview
Thursday probably has the most important event of the week. At 1:45 p.m., a press release from the European Central Bank (ECB) will be held, for which the market awaits. Changes in the monetary policy, i.e. in the level of interest rates and in the asset purchase programme, are not expected.
The statement and the press conference of Mario Draghi, President of the ECB, which starts 45 minutes later, may be important. Recent data indicated that the rapid pace of economic growth in the euro area has cooled down, and inflation in the eurozone has remained subdued all the time. They are factors that are rather in favour of a relatively dovish statement and conference.
It is possible that the lack of a reference made in a statement of the possibility of leaving the quantitative easing may be perceived by the market as dovish. In such a case, the euro may depreciate, which would result in an appreciation pressure on the dollar, and at the same time may further deteriorate the zloty's valuation.
There are not too many arguments for Draghi's statements to be hawkish either. In particular, significant fluctuations are expected in the foreign exchange around the time of the publication and the press conference. However, the chances for a positive scenario for the euro, and indirectly for the zloty, are rather limited.
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.
The depreciation on the stock and bond market puts the zloty under pressure. The weakening of the Polish currency may be deepened tomorrow, after a press release and statement of the ECB.
Dollar the highest since 3.5 months
During today's session, a continuation of the sentiment deterioration on the market has been observed from yesterday afternoon. The main market indexes were clearly depreciating, which, combined with the increased yields of the US Treasury bonds put pressure on emerging currencies. In such circumstances, capital flows from assets perceived as riskier to more secure and increasingly profitable bonds, e.g. in the US.
Such a scenario was most often bad for the zloty and the current falls are nothing special. It should be remembered the Polish Monetary Policy Council's dovish attitude towards the interest rates (their increase is not expected). This is opposite to the action of the US Federal Reserve, which is likely to raise its rates three times or more this year.
Today, the euro's exchange rate rose PLN 4.23 PLN, the highest level in a month. Only 0.02 PLN are missing for EUR/PLN to reach its six-month highs. On the other hand, the dollar increase slightly above 3.47 PLN meant that the US currency unit cost the most since January 11th. The zloty was not under pressure only in terms of its relation to the main currencies - it was also weaker against the forint. The PLN/HUF pair fell to 74, which meant that the zloty was the cheapest in relation to the Hungarian currency in 20 days.
The calendar of scheduled publications for the rest of the day is limited, therefore the quotations on the foreign exchange market will be more influenced by the current sentiment. If it does not change significantly during the afternoon, when investors from the USA become more active, the zloty's quotations may stabilize around the current levels. Taking into account the high volatility of the market today, a response in the evening and the improvement of the global sentiment may slightly improve the valuation of the zloty's basket.
Tomorrow's preview
Thursday probably has the most important event of the week. At 1:45 p.m., a press release from the European Central Bank (ECB) will be held, for which the market awaits. Changes in the monetary policy, i.e. in the level of interest rates and in the asset purchase programme, are not expected.
The statement and the press conference of Mario Draghi, President of the ECB, which starts 45 minutes later, may be important. Recent data indicated that the rapid pace of economic growth in the euro area has cooled down, and inflation in the eurozone has remained subdued all the time. They are factors that are rather in favour of a relatively dovish statement and conference.
It is possible that the lack of a reference made in a statement of the possibility of leaving the quantitative easing may be perceived by the market as dovish. In such a case, the euro may depreciate, which would result in an appreciation pressure on the dollar, and at the same time may further deteriorate the zloty's valuation.
There are not too many arguments for Draghi's statements to be hawkish either. In particular, significant fluctuations are expected in the foreign exchange around the time of the publication and the press conference. However, the chances for a positive scenario for the euro, and indirectly for the zloty, are rather limited.
See also:
Risk aversion (Daily analysis 25.04.2018)
Only minor changes (Afternoon analysis 24.04.2018)
Stabilisation seen in the zloty
Euro the most expensive in over a month (Afternoon analysis 23.04.2018)
Attractive exchange rates of 27 currencies
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