Afternoon analysis 08.06.2016

, author:

Marcin Lipka

A solid beginning of the month for emerging market and commodity currencies. Key days for the pound. Benefits from the positive global trends pushed the USD/PLN below 3.80 level.

Significant changes on EM currencies

Looking at the EUR/USD, it is clear that Friday's data from the US Labour Department has clearly influenced its condition. The leading currency pair recorded a gain in excess of 200 pips, or about 2%. However, this move doesn’t look that robust in comparison to changes observed in the EM currencies.

Since the beginning of June, the South African rand appreciated against the dollar by more than 6.7%. Only slightly worse was the result recorded by the Brazilian real. It gained almost 6.5% to the US currency. A solid performance was also observed on the Colombian peso and the Russian rouble. The fifth strongest result goes to the Polish zloty which soared 3.7% to the green back.

There are two elements that contribute to such large movements on the currencies of developing countries. Firstly, Friday's Labor Department data resulted in a significant reduction of probability for Fed’s hikes in the following months. Investors however, probably do not expect weaker readings from the jobs market to continue. There is a big chance that they came to similar conclusions as we noted in Monday’s analysis - weak "payrolls" is a statistical disorder, but the Fed can’t ignore it and it will have to delay the hike.

It is also positive news for the stock market and raw materials. US stocks are almost to historical records, and just this month the oil jumped by 5%, reaching the highest levels in 10 months. Strong gains are also observed on agricultural commodities and precious metals. Wheat and coffee soared around 10% since the beginning of June, and silver was pushed higher by 6.5%. As a result it should not be surprising that both the real and the rand are much stronger, despite that Brazil and South Africa are facing serious economic issues and risks of further rating cuts.

It is possible that at least until next week's meeting of the Federal Reserve, the positive sentiment on the EM currency is likely to stay. The key, however, is the result of discussions between representatives of the Fed. According to our view, it may not be as dovish as some investors expect. The FOMC may leave the door open for a July hike if the data improves. It may be a signal to reverse some of the recent dollar weakness.

The referendum. Polish currency remains stable

Exactly 15 days are left before the referendum, in which the UK will decide whether to remain in the structures of the Union, or leave it. Only one survey has been published in recent hours. It was an online study conducted by YouGov which showed that the remain camp leads Brexit supporters by one percentage point.

Considering the latest three YouGov polls where the average showed a slight lead of the Brexit supporters, it may be slightly positive message for the remain camp. On the other hand, the difference is slim and would probably not be a significant argument to return to the pound - especially considering that at the end of May, many research centers showed a strong swing against the UE. Investors are expected to focus on telephone polls in the following days as they seem to be more reliable.

The zloty is really strong today. It gained not only to the leading currencies due to global moves but the PLN also appreciated to the HUF. It is possible that some “shorts” were forced to close their positions against the zloty. It is also possible that some medium term portfolio investors took advantage of attractive yields on Polish bonds. It pushed the USD/PLN below the 3.80 level, while the EUR/PLN is approaching 4.30 mark. The situation should not significantly change until next week’s Fed meeting.

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 the written permission from Sp. z o.o is prohibited.

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