Comments from representatives of the leading central banks – Stanley Fisher from the Fed, Mario Draghi from the ECB, and Thomas Jordan from the SNB. The zloty failed to continue yesterday's enforcement, but the Polish currency defended its position from the beginning of the week.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
No macro data that could have a significant impact on the analysed currency pairs.
Uncertainty among the Fed
Last afternoon's testimony of Stanley Fisher, vice-chairman of the Federal Reserve, was the first set of opinions regarding the global economic situation and plans of the Fed, after January's meeting of the American monetary authorities. Even though no crucial matters were undertaken in the previously prepared statement, as well as in the series of questions&answers, the “uncertainty” that appeared in them allows to come to certain conclusions.
Fischer took note of an increased anxiety regarding the global perspectives. Especially “occurring stuctural adjustments in China, and the impact of a decrease in prices of raw materials on the growth of the market's volatility. He also claimed that for the time being “it is difficult to estimate the possible implications of this volatility”.
„If these events lead to a severe tightening of financial conditions, they may announce a slowdown in the global economy, and therefore influence the growth and inflation in the USA”, continued the Fed vice-chairman. However, further on he also added that “in the past years we have also seen similar periods of volatility, and their durable impact on the economy was small”.
Fischer also answered himself to a hypothetical question from the audience. It was: “what will the Fed do on the upcoming meeting?”. Vice-chairman of the Federal Reserve emphasised “I cannot answer this question, because as I underlined it in the past I simply do not know”. “The world is an uncertain place, and what every representative of the monetary authorities can be really sure of, is that the things that will happen are very often different from what we expect”.
Even though the fact of economic uncertainty is difficult to deny, according to the official announcement the Fed was “quite convinced” in mid December that “inflation will grow in mid-term to a 2 percent target”. Considering the national and international events, the Federal Reserve claimed that “the risk of prognoses concerning economic activity, as well as the labour market, is balanced”.
Thus, considering that the above base case scenario (which made the hikes in December possible) would be disturbed, it is possible that the Fed will use the argument of “uncertainty” to withdraw from 4 hikes this year already on their meeting in March. This fact may keep the dollar under pressure, at least until the market's volatility and a weak condition of the capital market will pass.
On the other hand, during his yesterday's testimony in the European Parliament Mario Draghi repeated one statement from January's announcement of the ECB. It stated that in March there will be a review, and a possible “consideration” of changes in the monetary policy. Currently such statements make a significantly lesser impression on the market than one month ago. It is because this information should already be included in quotations of the euro, as well as the euro zone's treasury bonds.
The franc is becoming cheaper
Since the beginning of the year the franc loses to the euro practically each day. During one month the Swiss currency lost approximately 2.5% to the euro, and the EUR/CHF pair is currently within the limits of 1.1150. This is the highest level since the SNB resign to keep the exchange rate above the limit of 1.20.
Today before noon, the SNB chairman Thomas Jordan said once again that “the franc is overvalued”, and the central bank will not hesitate to “use the balance”. This can be interpreted as another confirmation of will to intervene on the currency market. He also added that they “observe what is going on in Frankfurt, and precisely analyse the best possible answer”. This on the other hand is a sign that the SNB is aware of a possibility of a further monetary easing by the ECB.
Additionally, it is also worth noticing that the SNB was most likely to succeed in scaring away the wallet capital. It always went to the franc when the aversion towards risk was dominating on the market. This success is confirmed by the franc's behaviour in the past weeks. At that time the markets were disturbed, and were gaining different safe assets.
This is also a good information for those who have loans denominated in the Swiss francs. If the Swiss monetary authorities manage to keep the EUR/CHF above 1.10, the risk of an increase above 4.00 on the CHF/PLN will be limited. Even if the zloty remains relatively weak to the euro.
The zloty becomes stable
Today before noon the national currency continued its yesterday's appreciation, and the EUR/PLN went for a moment even below the limit of 4.38. However, the movement downwards evened out quite quickly, and now the euro is quoted within the limits of 4.40, and the franc costs 3.95 PLN.
Considering the current global situation and the consequences of rating downgrade by the S&P, it is probably to early yet to expect a depreciation of the EUR/PLN to the range of 4.20-4.30. Yesterday's appreciation movement was probably a one-time situation. Especially that it appeared during some unfavourable external conditions.
However, in a long-term (and by this we mean a perspective of few months) the national currency should work off most of the losses related to a downgrade of loan credibility, and easing of fiscal policy. That is of course, if the external situation stabilises. Probability of such movement is more likely to grow, if the Monetary Policy Council is not willing to cut interest rates, and the ECB eases the monetary policy in March, according to its suggestions.
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 acknowledgement of the source is prohibited.
Comments from representatives of the leading central banks – Stanley Fisher from the Fed, Mario Draghi from the ECB, and Thomas Jordan from the SNB. The zloty failed to continue yesterday's enforcement, but the Polish currency defended its position from the beginning of the week.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
Uncertainty among the Fed
Last afternoon's testimony of Stanley Fisher, vice-chairman of the Federal Reserve, was the first set of opinions regarding the global economic situation and plans of the Fed, after January's meeting of the American monetary authorities. Even though no crucial matters were undertaken in the previously prepared statement, as well as in the series of questions&answers, the “uncertainty” that appeared in them allows to come to certain conclusions.
Fischer took note of an increased anxiety regarding the global perspectives. Especially “occurring stuctural adjustments in China, and the impact of a decrease in prices of raw materials on the growth of the market's volatility. He also claimed that for the time being “it is difficult to estimate the possible implications of this volatility”.
„If these events lead to a severe tightening of financial conditions, they may announce a slowdown in the global economy, and therefore influence the growth and inflation in the USA”, continued the Fed vice-chairman. However, further on he also added that “in the past years we have also seen similar periods of volatility, and their durable impact on the economy was small”.
Fischer also answered himself to a hypothetical question from the audience. It was: “what will the Fed do on the upcoming meeting?”. Vice-chairman of the Federal Reserve emphasised “I cannot answer this question, because as I underlined it in the past I simply do not know”. “The world is an uncertain place, and what every representative of the monetary authorities can be really sure of, is that the things that will happen are very often different from what we expect”.
Even though the fact of economic uncertainty is difficult to deny, according to the official announcement the Fed was “quite convinced” in mid December that “inflation will grow in mid-term to a 2 percent target”. Considering the national and international events, the Federal Reserve claimed that “the risk of prognoses concerning economic activity, as well as the labour market, is balanced”.
Thus, considering that the above base case scenario (which made the hikes in December possible) would be disturbed, it is possible that the Fed will use the argument of “uncertainty” to withdraw from 4 hikes this year already on their meeting in March. This fact may keep the dollar under pressure, at least until the market's volatility and a weak condition of the capital market will pass.
On the other hand, during his yesterday's testimony in the European Parliament Mario Draghi repeated one statement from January's announcement of the ECB. It stated that in March there will be a review, and a possible “consideration” of changes in the monetary policy. Currently such statements make a significantly lesser impression on the market than one month ago. It is because this information should already be included in quotations of the euro, as well as the euro zone's treasury bonds.
The franc is becoming cheaper
Since the beginning of the year the franc loses to the euro practically each day. During one month the Swiss currency lost approximately 2.5% to the euro, and the EUR/CHF pair is currently within the limits of 1.1150. This is the highest level since the SNB resign to keep the exchange rate above the limit of 1.20.
Today before noon, the SNB chairman Thomas Jordan said once again that “the franc is overvalued”, and the central bank will not hesitate to “use the balance”. This can be interpreted as another confirmation of will to intervene on the currency market. He also added that they “observe what is going on in Frankfurt, and precisely analyse the best possible answer”. This on the other hand is a sign that the SNB is aware of a possibility of a further monetary easing by the ECB.
Additionally, it is also worth noticing that the SNB was most likely to succeed in scaring away the wallet capital. It always went to the franc when the aversion towards risk was dominating on the market. This success is confirmed by the franc's behaviour in the past weeks. At that time the markets were disturbed, and were gaining different safe assets.
This is also a good information for those who have loans denominated in the Swiss francs. If the Swiss monetary authorities manage to keep the EUR/CHF above 1.10, the risk of an increase above 4.00 on the CHF/PLN will be limited. Even if the zloty remains relatively weak to the euro.
The zloty becomes stable
Today before noon the national currency continued its yesterday's appreciation, and the EUR/PLN went for a moment even below the limit of 4.38. However, the movement downwards evened out quite quickly, and now the euro is quoted within the limits of 4.40, and the franc costs 3.95 PLN.
Considering the current global situation and the consequences of rating downgrade by the S&P, it is probably to early yet to expect a depreciation of the EUR/PLN to the range of 4.20-4.30. Yesterday's appreciation movement was probably a one-time situation. Especially that it appeared during some unfavourable external conditions.
However, in a long-term (and by this we mean a perspective of few months) the national currency should work off most of the losses related to a downgrade of loan credibility, and easing of fiscal policy. That is of course, if the external situation stabilises. Probability of such movement is more likely to grow, if the Monetary Policy Council is not willing to cut interest rates, and the ECB eases the monetary policy in March, according to its suggestions.
See also:
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