Looking at the current political situation through the prism of the currency market, it is fair to say that the euro zone may be on the brink of abyss. The foreign exchange market now lives with reports from two fronts, one of them is the policy of Donald Trump, the second is political situation in Europe.
EUR second day in a row is a rapidly sold out, the largest decreases were seen in opposition to the JPY, which has the status of safe haven. EUR also lost against the dollar (now EURUSD has been falling by -0.8%) and CHF. Is this the end of declines ? Probably not. If the anti-EU parties will continue to strengthen in the polls, we can observe only the beginning of massive turmoil in the markets. Everything else in front of us, the key event will be the first elections in the Netherlands (held in March). Leader in recent polls is the Anti-EU Party for Freedom (PVV) led by Geert Wilders.
In case of her winning possible is desire to leave the eurozone or the European Union. However, the current advantage in the polls is not large enough to PVV could govern alone, and now Prime Minister of the ruling VVD (People’s Party), Mark Rutte said that the chances of cooperation with the Freedom Party are zero. The Netherlands is just the beginning, more important will be presidential elections in France, which will take place in April. Very good chance to win has Marine Le Pen, who is the leader of the National Front. Le Pen announced officially to hold a referendum on leaving the EU and the rejection of the common currency. If that was not enough, in September we will face parliamentary elections in Germany. According to a recent survey INSA, the party SPD in the polls is ahead of the party CDU candidate for the fourth time Chancellor Angela Merkel.
It is also interesting on more exotic markets. We got to know data on foreign exchange reserves of China, which in January fell below the psychological barrier of $ 3bln. The same can be seen in the continued large-scale intervention by the Bank of China, which is trying to reduce the outflow of capital. It is increasingly difficult with the stronger dollar and rising yields, especially US bonds. Last year, China’s struggle with capital outflows affected the tremendous risk aversion, but the markets somewhat downplay the problems with China’s while complicated situation in the US and Europe. At night, it was interesting to hear news from Australia and New Zealand. Reserve Bank of Australia left rates unchanged, but has entered into a number of optimistic comments in its communication. Earlier in the morning New Zealand dollar was strong, which shot up due to higher inflation expectations.
PLN remains a strong part of the market and is expected that Poland will be the main beneficiary of global reflation and economic slowdown will be temporary. Today begins a two-day meeting of the National Bank of Poland, the consensus assumes no change in interest, but it is possible that Pollish Zloty will remain strong with hawkish comments from the central bank. All the time are present risk factors associated with weaker investment community and political turmoil in Europe. EUR lost against PLN -0.37% (4.28), USD strengthened to about PLN 0.41% (4.012), CHF loses to PLN -0.45% (4.016) and GBP is weaker against the zloty by -0.4% (4,963).
Adam Puchalski. Analyst of financial markets, XTB
