The zloty started the week with a strengthening and, paired with the euro, is the strongest since December last year. – the period of intervention of the National Bank of Poland. Other emerging market currencies are also doing well. Their increases are supported by increases in commodity prices, estimate Ebury analysts: Enrique Diaz-Alvarez, Matthew Ryan, Roman Ziruk.
Bond yields in the G10 countries currently remain stable. However, we believe it is only a matter of time before they begin to grow amid stronger-than-expected economic recovery in other countries and continued pressure on supply chains and ultimately prices as well. The Brazilian real, Chilean peso and the New Zealand dollar were the best performers last week due to rising commodity prices, while the Japanese yen – not surprisingly – performed the worst as a safe haven currency.
This week is shorter on UK and US holidays, but data abundant nonetheless. Apart from the inflation reading in the euro zone, which was released on the morning of June 1, the US ISM data will be released later in the week (the price component will be important in them). Finally, on Friday, we will receive the latest non-farm payrolls report from the US labor market in May. The possible juxtaposition of soaring demand with friction in the labor market makes the readings extremely uncertain.
PLN
Last week saw a slight strengthening of the zloty. The current one also started with an appreciation. The zloty was paired with the euro at its highest this year after it broke the February highs after the start of the new month.
The strength of the zloty is supported by a number of factors. On the global level, the weakness of the dollar, the stabilization of bond yields in the US and the positive news about the pandemic are favorable. Among the domestic ones, the sustained improvement on the epidemic front (the lowest number of new infections since September) and the high vaccination rate (approx. 0.7 doses per 100 people per day) are noteworthy. The economic situation also looks better and better: GDP data for Q1 surprised positively this week (they were better than initially announced, their structure was also favorable), and the manufacturing PMI index reached an all-time high of 57.2 points.
EUR
Dovish announcements from members of the Governing Council of the European Central Bank have now stopped the appreciation of the euro. While the markets remain focused at the ECB meeting on June 10, we got the inflation data for May. They showed a slightly higher dynamics than expected: at 2% in annual terms, it is the highest since October 2018. Core inflation, important for the central bank, also increased unexpectedly, excluding fluctuations in the most volatile components. However, it still reaches much lower levels (0.9% y / y in May) than the above-mentioned more popular indicator.
USD
Another week and another higher than expected inflation readings in the US. Last week’s surprises came with the GDP deflator in Q1 and the more recent personal consumer spending (PCE) deflator, which is the Fed’s preferred measure of inflation. The latter showed a dynamics of 3.6% in annual terms, which was the highest growth rate since September 2008. For the time being, it does not have any impact on the bond market: the yields of 10-year government bonds ended the week at a level close to the level at which started it.
GBP
The pound ended last week as the second best performing currency of the G10. This was due to the sharp recovery, particularly in the manufacturing sector, as shown by the PMI indices, coupled with hawkish voices from the Bank of England. Although we expect the pound’s appreciation to halt this week, in particular due to the lack of fresh news from the economy, we believe the BoE may overtake the Fed and the ECB in the process of withdrawing from the monetary stimulation of the economy. For the currency, this can only be beneficial.
Shortened week is not full of economic data from Great Britain apart from PMI data revisions. On Thursday, however, BoE CEO Andrew Bailey is speaking, which may attract investors’ attention in the second part of the week.
CHF
The Swiss Franc was one of the worst performing currencies of the G10 last week and ended it slightly lower than the euro despite falling US bond yields, which has often been a positive factor for the currency in recent times. Recent changes to demand deposits indicate that the Swiss National Bank is still intervening, but the intensity seems to be waning. Reports on the positioning of the Commodity Futures Trading Commission still indicate a slightly negative attitude of speculators towards the franc. We believe it may deteriorate further in the coming quarters, which should put some pressure on the currency.
Nevertheless, the latest news on fighting the pandemic and forward-looking economic data from Switzerland are positive, helping the franc outperform the Japanese yen. The KOF leading indicator, which is a barometer of future economic growth, rose to a record high of 143.2 points in May.
Source: Ebury and ISBnews
