Afternoon analysis 03.08.2016

, author:

Marcin Lipka

The employment data slightly better than estimated and the dollar is trading fairly stable. The pound before the BoE meeting. Foreign financial institutions on the zloty after the foreign currency mortgage developments.

In the early afternoon, new data on US private employment which was collected by ADP hit the wire. They were 9k above the market consensus at +179k level. Additionally, there was 4k upward revision for the previous month.

Theoretically the ADP publication should give the FOMC more reasons that the job market in the US remains solid. This should also increase the odds that the Fed increases interest rates and therefore boosts the USD. Additionally, we have noted many times that the ADP readings are usually much more reliable than the official Labour Department publication due to the fact that they include a significantly larger sample.

However, investors traditionally pay much more attention to the “payrolls” which are scheduled to be published on Friday. Additionally, as we wrote earlier, due to the weak GDP numbers for the past few quarters the FOMC will face a significant obstacle to even suggest an increase this year.

As a result, despite the fact that the ADP data is dollar positive, its appreciation may be difficult in the following weeks even if the official “payrolls” turn out to be above expectations and a stronger dollar is still not a base case scenario for the holiday period.

Slightly weaker pound

Less than 24 hours separate us from a very important decision from the Bank of England (BoE). In today's first analysis we presented the key elements in the BoE message, which may affect the condition of the pound. Overall, however, predicting the movement from the British monetary authorities is extremely difficult because it is not clear how the central bank receives the latest weak macro data. They may either support the view that leading indicators are really predicting a significant slowdown in the economy or claim there is not enough hard data to make a more serious decision.

Regarding the interest rate cut, the decision is almost finished and it will be probably be cut by 25 bps. Concerning the QE operation, we are rather lean to the view that it may not be announced tomorrow. It would probably push the pound toward 1.35 on the GBP/USD pair.

The appreciation move might be slightly softened by the fact that some of the MPC members may vote for the QE or in the minutes there might be a strong discussion regarding the monetary stimulus in the data worsen in the following weeks.

Strong zloty

The EUR/PLN trade around 4.30 should be regarded as a fairly balanced level after yesterday’s message from the Presidential Office. Moreover, it is worth noting that some comments from foreign financial institutions create a broad sentiment which may also affect the PLN.

Nomura Bank claims that the recent developments “reinforce our medium run bullish PLN view now that we have this major hurdle of uncertainty cleared.” Citibank writes that “PLN, zloty government bonds to benefit from Polish CHF proposal.” The most interesting view is presented by Societe Generale. In a report cited by Bloomberg SocGen “recommends targeting a 5% increase in PLN/HUF to 75.6 in 3-4 months.

It is worth noting that since yesterday morning, the appreciation on PLN/HUF was just 1.2%. The 75.6 level would also mean that the pair would almost be the highest in history. In our opinion, such a move has a fairly low probability of materializing, despite that fact that one of the most significant hurdles for the Polish zloty was significantly diminished and still there is some potential for the pair to appreciate.


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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