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21.11.2008 - Weekly Currency Brief

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Date: 2008-11-21 18:16

Last week did not bring a relevant change to currency markets, as the EURUSD market is still strongly correlated with the situation on global stock markets where emotions have been the prime determinant for the last few months. The breaking of the October bottoms by all US indices has affected the strengthening of the US Dollar, which on the other hand was not affected by negative macroeconomic data with the addition of speculations on further rate cuts by the Federal Reserve.

There are currently two possible scenarios, where the first is connected with the further sell out on stock and commodity markets, which will cause the continuation of the decrease trend on the EURUSD market to the level of 1.21. The second scenario is based on the stability of stock markets in the medium term and the return of capital to emerging markets, which will obviously weaken the US Dollar even to the level of 1.33 against the Euro.

As to the Polish economy then it has to be underlined that industrial production noted a meaningful decrease, which can signal an eventual rate cut in the near future. What has to be added is that this is very probable due to the weakening fret of inflation. Due to the fact that a rate cut, according to the Monetary Policy Council (RPP), will be possible in the first quarter of 2009, the USDPLN and EURPLN markets will be dependant on market movements on the EURUSD market.


Pawel Nieradka