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Daily analysis 04.02.2016

, author:

Marcin Lipka

Yesterday, the dollar significantly wore off after the worse ISM publication and statements of the Fed representatives. Dovish statement from Mario Draghi did not wore off the euro. The zloty is gaining mainly to the dollar and the franc, but it is not able to work off the losses to the forint.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: Weekly jobless claims in the USA (estimations: 277k).
  • 16.00: Orders from the American industry in December (-2.8% m/m).

A crucial day

Events at yesterday's session can be considered as crucial, at least regarding the forthcoming weeks. The perspective of the monetary tightening in the USA has been limited. Currently, it is not only due to evaluation of the debt instruments and contracts for interest rates. It is also because of the statements from the Federal Reserve members and worse than expected macro publications.

At approximately 14.30, the MNI information agency published the statement from William Dudley. Representative of the New York Federal Reserve claimed that “if the conditions on the financial market remain the same until our meeting in March, we will have to take it under consideration when it comes to our monetary policy”. What is worth emphasizing, Dudley was the first one among the leading Fed representatives who at the end of August suggested a smaller probability of monetary tightening in September. At that time the FOMC actually did not decide to raise interest rates.

Publication of the ISM index for the services sector is another element which decreased the chances for the hikes in forthcoming months. It went down to its lowest levels for almost two years. This was a suggestion that the sector which is the main engine of the American economy may slowdown.

The subindex of employment included in the ISM publication, was also taken negatively. It went down to the lowest level for a year. More than 80% employed Americans work in the services sector. This may mean that soon we might see a slowdown at pace of creating workplaces in the USA. This is another argument that can stop the monetary authorities from the monetary tightening.

Late evening of the Polish time, The Wall Street Journal published statements from Leal Brainard. The Fed governor, who is considered as slightly more dovish than the consensus, claimed that “recent developments reinforce the case (of keeping interest rates unchanged – author's footnote) for watchful waiting”. Brainard is afraid of negative consequences of the tension on the emerging markets. She is also concerned that a slower growth of these economies will have an impact on the United States. „This translates to a weaker export, investments and production in the USA; slower progress in reaching the inflation target and tightening financial conditions through the currency market; and an increase in spread between the financial assets”, said Brainard in the WSJ. Such arguments are often used in order to ease the monetary policy, or to stop an increase in interest rates.

Thus, it is possible that yesterday's publications and statements from the Fed members are just a beginning of changes in approach of the American monetary authorities. In the forthcoming days the FOMC will probably want to send similar dovish signs. They, on the other hand, may keep general weakness on the American currency.

Draghi is also dovish. But does the market believe this?

Apart from yesterday's events on the currency market, it is also worth noting the dovish testimony of Mario Draghi. It did not cause a visible depreciation on the euro. Quite the opposite. After the testimony, level of the EUR/USD increased. It is possible that it was because of its specific form, which did not hit many headlines. It was more a discussion between the supporters of a reaction of the monetary policy to a low inflation (caused by prices of raw materials, demographical changes, and development of technology which increases a depreciation pressure on the prices), and those who think that the monetary policy should not react to such changes.

Draghi is definitely a supporter of the first approach. This may suggest new actions in the monetary policy, established on the meeting in March. Additionally, it is possible that this time they will not only have to fulfil the market's expectations, but also exceed them. It did not work out last December.

And the events from December may also be a factor that will make the market sceptical towards the ECB actions. At that time the market's consensus was not fulfilled. The monthly amount of purchased assets remained on the constant level, despite the fact it was expected to increase by at least 15 billion. This, on the other hand, might make appreciation of the EUR/USD easier until the ECB meeting in March.

Zloty should take advantage from the global events

It is possible that the following weeks may fulfil the scenario which will allow an appreciation on the PLN. It is becoming more likely that the Fed will not change interest rates in the forthcoming months. Additionally, there are more and more signs that the ECB will significantly increase the monetary easing. Moreover, the Bank of Japan decreased its deposit rate below zero. It is also possible that the Bank of England will begin to increase interest rates significantly later than expected. When it comes to the Swiss monetary authorities, we can also expect the deposit rate to remain on a negative level, and even its further reduction.

The global monetary stimulation should be advantageous for the currencies of the emerging markets, including the zloty. Thus, it is possible that during the forthcoming weeks the EUR/PLN will even go to the area of 4.30, and the dollar and the franc will reach the level of 3.85. However, we need to take note that lower levels on the foreign currencies will be result of their own wear off, than the enforcement coming from the Polish economy.

A good indicator for the actual power of the zloty is still comparing it to the quotations of the forint. From the beginning of the year the Polish zloty continues to lose approximately 4-5% to the Hungarian currency. We will not be able to speak of a strong zloty until this value is not significantly reduced, despite its higher evaluations than in the case of the foreign currencies.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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