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Daily analysis 07.06.2016

, author:

Marcin Lipka

Many unknowns after Janet Yellen's testimony cause investors to seriously doubt the idea of hikes in the next months. The dollar, as well as the euro, are clearly cheaper mainly due to the global changes. The zloty is not working-off the past months' losses against the forint.

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 significantly impact the analyzed currency pairs.

Yellen anticipates the further development of the situation

It is very difficult to interpret Janet Yellen's testimony from yesterday. The FOMC chairwoman presented many arguments that show a positive condition of the American economy. On the other hand, she indicated many matters that may have a negative impact on the expected condition of the United States as well.

First of all, Yellen withdrew from her suggestions regarding the hikes in the next months - she had made these claims at the end of May at a meeting at Harvard University. This kind of statement did not appear yesterday. Secondly, the unknowns from Yellen's message are basically immediately interpreted as an element that leaves interest rates unchanged. Thus, yesterday's statements may be received as slightly dovish.

The most important part of the testimony in Philadelphia concerned economic perspectives. It was divided into two parts – optimistic and pessimistic. The optimistic part consisted of, for example, the condition of the labor market. However, Yellen emphasized that the latest data is either a deflection, or “a consequence of a weaker beginning of the year.”

Yellen took note of an increase in the households incomes, as well as assumed that, “consumers expenses will increase at a rapid pace.” The Fed's chairwoman expects an improvement in the real estate market as well. The matters related to the Chinese economic situations appeared regarding the risks, even though these anxieties had decreased recently. Moreover, the FOMC chair claimed that, “investments are weak for the past six months.” However, she considers this phenomena to be temporary.

Yellen is also afraid of significant changes in investors' sentiment. For example, she said that, “the British referendum regarding Brexit may have significant economic consequences.” However, Janet Yellen claimed that, “positive economic powers have an advantage over negative economic powers, and despite the challenges that are ahead of the economy, I continue to expect a progress in our goals in employment, as well as inflation.”

In summary, Yellen claimed that, “the monetary policy is not at a previously established course.” This suggests that the recent events may disturb the previous approach to a certain degree. Moreover, the Federal Reserve will need more data, in order to estimate their impact.

It is also worth noting that if the United Kingdom does not leave the European Union, and the labor market data from May returns to the area of 150-200k workplaces, Yellen's testimony may serve as an argument for the hikes in July. This is because the risks that recently appeared, are disappearing almost immediately. However, if at least one of the above dangers occur, chances for the hikes will decrease clearly. Moreover, it is unknown whether there will even be one increase at the level of 0.25% by the end of 2016.

Attaching to specific events may create strong changes in the currencies. If there are more weak publications from the American Labor Department, we may expect the USD to wear-off. On the other hand, Brexit should cause a significantly weaker wear-off signal for the dollar than a significant increase in risk aversion. Thus, the potential increase in the EUR/USD is basically based on weaker data from the USA. Global disturbances (especially related to Brexit) will most likely be favorable for the USD, and may cause a clear depreciation of the main currency pair.

Zloty is stronger, but not against forint

Looking at quotations of the euro, as well as the dollar, it may seem that the zloty strengthened clearly. At the beginning of the session on Friday, the USD/PLN was testing 3.94, and the EUR/PLN was near 4.40. Currently, the American currency is worth approximately 0.10 PLN less, and the euro costs 4.35 PLN.

However, the situation is completely different regarding the forint. Changes in the PLN/HUF are minor, and the zloty remains approximately 2% away from its 3-year minimum against the Hungarian currency. This may lead to a conclusion that depreciation of the USD/PLN, as well as the EUR/PLN, is an effect of global changes caused by decreasing chances for the monetary tightening in the USA, rather than the zloty working-off its losses from the beginning of the year.

There is a probability that the euro or the dollar may return to their previous levels quickly. This will happen if the global situation deteriorates significantly, or if the probability of the hikes in the USA increase.


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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