Afternoon analysis 14.07.2016

, author:

Marcin Lipka

The Bank of England left interest rates unchanged, but it has clearly suggested a decrease at the next meeting. Low level of jobless claims in the USA and a higher than expected producers inflation. A positive global sentiment is supporting stabilization of the zloty. However, the foreign trade data is quite weak.

The Bank of England left the basic parameters of the monetary policy at an unchanged level. This was despite the market instruments which estimated a decrease in interest rates, as well as the expectations of the majority of economists. It caused a significant rebound on the GBP/USD pair that went from the 1.3220 level to 1.3470. However, the quotations have quickly returned to the 1.3300 area.

It is worth noticing that the decision was basically unanimous. Only one member of the British monetary authorities wanted a decrease in interest rates, and none of them voted for an increase in the assets purchase program. Theoretically, this is a positive argument for those who are expecting the BoE to be less dovish.

On the other hand, the announcement, as well as the minutes contain a clear message that the monetary easing will be made at the next meeting (on September 4th). “The majority of the Committee members expect monetary easing in August,” states the extended portion of the announcement.

The next sentence also contains information that, “the exact size, as well as the character of possible stimulative means, will be established during August’s round of forecasts in the Inflation Report.” There are no details regarding the origin of the mentioned stimulative means in the minutes. However, we may assume that the BoE will take the return to assets purchases under consideration, as well as the special loans-for-companies program. Both of these elements were already used before.

What does this mean for the pound? Today's lack of cutting, as well as an agreement regarding the direction of the future monetary policy, may mean that the Bank of England does not want to overreact. The institution will have a good explanation concerning its decisions while anticipating the new Inflation Report, as well as the macroeconomic data.

The market will most likely try to estimate the new decisions in a more cautious ways. Moreover, many of its participants, as well as economists, will most of all indicate an increase in interest rates by 25 base case points and some additional element of a loan stimulation (in a limited form for the time being). We may find some hints in the new statements from the Bank of England representatives in the following days. Currently, this information is moderately favorable for the pound. However, it will limit its depreciation potential of the pound, rather than sustain the growth tendency from the past few days.

Positive data from USA and steady zloty

Today, we received the new jobless claims data from the USA. It was yet again at its multi-year minimum, at the 254k level. Additionally, it is worth noting a clearly higher than expected producers base case inflation reading (positive 1.3% vs 1.0% of consensus). Next to the publication from February, these are the highest levels since approximately one-and-a-half years ago. Both of these readings slightly increase a chance for the monetary tightening in the forthcoming months.

The zloty is stable in the afternoon, except for the GBP/PLN pair. It went from the 5.25 to 5.35 level, shortly after the decision of the BoE. However, this move was significantly reduced at approximately 16.00 (4.00 PM), and currently the pound costs 5.28 PLN.

On the other hand, the NBP foreign trade data can be interpreted negatively. It confirmed a decrease in the pace of the export growth from yesterday's GUS data. Moreover, if we look at the value of the exported goods expressed in the euro, it went down by 4.5% in comparison to May 2015.

However, the coming hours should be relatively calm for the PLN, especially considering that the opening of the American session confirms the continuation of a positive global sentiment.

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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