Afternoon analysis 21.08.2015:
Investors are worried with the gloomy outlook of the world's economy. The euro hit the highest level since the end of June against the dollar. The zloty dropped against the common currency and the Swiss franc.
Recently, the probability that the Federal Reserve will raise rates in September has been limited. Growing uncertainty in the world's economy (especially in China), a strong dollar and very low commodity prices deferred the term of the first interest rate hike in the US in almost a decade. Although the Fed members will speak within the next few days, there is little chance the situation will change.
Today the US PMI index was published. The gauge dropped to 52.9 against the 54.1 that was projected. Last month it stood at the 53.8 level. Although the report is less important than the readings concerning the European economies, it is an additional signal that the interest rate hike will be sooner rather than later.
Earlier in the day, the EUR/USD was briefly above the 1.13 level. Last time the major currency pair was so high was on 23 June.
Emerging markets sell-off
As the term of the interest rate hike moved from September to December, the emerging market currencies should have rebounded. However, currently we are observing the opposite situation. As the anxiety concerning the emerging market economies increases, the market sentiment is getting worse.
Today the reports from China were released. In August the PMI index dropped to 47.1 points. It was the lowest reading in six years. A result below the 50 level signals deterioration of the situation. A similar result has been prevailing for six months.
It was the next negative piece of information concerning the second largest world economy after the US. In early summer the Shanghai stock market plunged and the authorities intervened to calm the situation. Later, the People's Bank of China devalued the yuan. Although the central bank said its goal was to make the yuan more marketable, the hidden goal was to support export.
The oil price hovered above the 41 dollar level. Recently, the commodity hit the lowest level since the beginning of 2009. It is a heavy burden for the commodity economies. Today, the rouble hit new lows. The USD/RUB was above 68 rouble for the first time since February.
Also Turkey is facing difficulties. The nation is going through a political crisis. The government will probably rule a snap election in November. Moreover, the country has been destabilized by the wars in the eastern part of its territory. As a result, the lire posted a significant decline. The USD/TRY moved above 3 on Thursday and today is near this level.
The Polish currency increased against the dollar and the pound, and dropped against the euro and the franc. However, the zloty was steady in contrast to the emerging market currencies.
The zloty's performance would have been caused by the fact, that the Polish economy is not susceptible to problems affecting other countries. Low oil prices have a positive influence. Similarly, the Chinese crisis and the yuan's devaluation will improve the trade balance. And finally, the Fed moving away from rate hikes and quite good data from Germany are also supporting the Polish economy.
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