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Daily analysis 08.09.2014

, author:

Marcin Lipka

Scottish independence voting is pushing the pound lower. The US employment data worse than estimated, but with no direct impact on the future monetary policy. Putin and Poroshenko committed to maintain the ceasefire. Chojna-Duch sees 50 bps rate cut in October.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • No macroeconomic data which may affect the analyzed pairs.

Scotland. Payrolls. Ukraine

The voting in Scotland , scheduled on September 18th, is gathering more and more attention from the markets. In recent weeks, the “No” dominance has been rapidly melting Just a month ago the YouGov polls showed that 55% of Scots would like to remain in the UK, while only 35% would like to establish a new country. However, last week the difference decreased to only 6%. This impact got even deeper due to the rumours at the markets. As a consequence, the situation started to hit the sterling, which was constantly losing value to the dollar (also the “greenback” appreciation helped to fuel the trend).

More concern regarding the UK's future was brought by last weekend’s opinion polls. According to YouGov the “No” camp is ahead by two percentage points just two weeks before the actual voting takes place. It pushed the GBP/USD to open 150 pips lower than from the level on which Friday's closed and the cable reached 1.6170 which is the lowest rate since November 2013.

The “cable” slide is closely connected to the fact that the UK may lose around 30% of land and 10% of the GDP. It is not entirely clear what may happen to British debt – whether the whole burden remains in the UK or it will be equally distributed between the states. More answers than questions arise from the RBS bank status, where the main equity holder is UK's government (a result of the 2008 financial crisis). It is also hard to judge if Scotland can keep the pound as its currency. Suggestions sent by London are leaning toward the scenario that it will not be possible for Scots to use GBPs. On the other hand, if the new state chooses to have its own currency, it would have to establish a new central bank. Taking into account the fact that the FX market would love to exploit its weaknesses, high volatility may be witnessed . The government in London was fairly relaxed regarding the referendum for a long time and therefore, no concrete procedures have been established. The issue complicates the situation for both sides (alike during Greece / eurozone crisis). The leading investment banks are swiftly verifying their views on “cable”. Valentin Marinov CitiFX strategist told the “Financial Times” today that “a move towards $1.56 or lower cannot be excluded in GBP/USD if Scotland does leave the union”. Until September 18th (or when the separation actually takes place ) the pound will mainly be affected by the Scottish issues and the incoming opinion polls.

The US employment data were quite weak. The economy generated only 142k jobs, while economists expected a reading well above 200k. Additionally, there was also a 30k downward revision from two previous months. According to the separate household survey, the unemployment rate dropped to 6.1%, but it was caused by a decrease in the participation rate (more people stopped looking for a job rather than found one). However, it is worth noting that it was the first weak reading for several months and the “data hesitation” should not affect either the pace of recovery or the monetary policy. In a similar way the data was interpreted by market participants, who exploited the short-term dollar weakness to increase the “shorts” on the EUR/USD. More sustainable “greenback” depreciation is possible, if the following readings fell short of expectations (rather low probability regarding the momentum of the economy).

Despite this a journalistic report on gun-fire exchange between separatists and Kiev forces, shows that the ceasefire in the Ukraine seems to be respected. At least such a view is shared by both Presidents Poroshenko and Putin. They also claim that the situation should be monitored by the OSEC officials and the other points on the Minsk agreement should go forward. Concerning the fact that the issue is closely watched by the most important people involved in the conflict and they share similar views, it can be assumed that the current attempt to restore peace in the region is most substantial.

“The Wall Street Journal” reported during the weekend that the UE is getting ready to introduce another set of sanctions against Russia. They will mainly deal with the energy and financial sectors. There are also some suggestions from the UE that if more evidence on deescalation is available, the trade restrictions may be halted. The rouble seems to still be a good benchmark regarding the situation in the region. The Russian currency is slightly weaker today but well off the recent lows.

Summarizing, the macroeconomic calendar is pretty empty this week. As a result, the currencies will be shaped mainly by the Ukrainian events and the pound should behave according to the opinion polls on Scottish independence voting.

The zloty remains stable but chances for appreciation are rising

The zloty remains pretty stable after last week’s gain and most trades are processed around 4.18 per euro. A significant monetary loosening in the eurozone should give a boost to the PLN (at least one percent). The appreciation is, however, muted due to the tension in the east of the continent where the situation is not improving as fast as the market anticipated.

A significant depreciation of the pound is also clearly visible regarding valuations to the zloty. As a result, the sterling dropped to 5.20 PLN. Similarly, to the scenarios presented in previous paragraphs, the situation on the British currency will be highly dependent on opinion polls concerning Scottish independence. Moreover, if the separation takes place and there is a drop towards 1.56 on the GBP/USD, 5.0000 on the GBP/PLN may even be predicted. On the other hand, in a scenario when the “No” campaign wins, the rebound should be pretty strong and 10 zloty-cent rise can be expected.

Reuters reported a short interview with Elzbieta Chojna-Duch. The MPC member told the news agency that the Committee should cut interest rates by 50 bps in October and the decision in November should depend on new macroeconomic projections. It seems that the view is close to the dovish camp opinion toward the monetary policy so it will not have any impact on the PLN.

Summarizing, the zloty should remain pretty stable with a chance to gain some value (the ECB decision) if the situation in the East de-escalates. In the forthcoming days there may even be a drop toward 4.15 per euro and markedly below 3.45 per Swiss franc.

Expected levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.3350-1.3450 1.3250-1.3350 1.3450-1.3550
Range EUR/PLN 4.1800-4.2200 4.2000-4.2400 4.1600-4.2000
Range USD/PLN 3.1000-3.1400 3.1400-3.1800 3.0600-3.1000
Range CHF/PLN 3.4400-3.4800 3.4600-3.5000 3.4200-3.4600

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.6350-1.6450 1.6450-1.6550 1.6550-1.6650
Range GBP/PLN 5.2300-5.2700 5.2500-5.2900 5.2700-5.3100

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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