Daily analysis 16.01.2015

, author:

Marcin Lipka

SNB decision is still the main topic on the market. Statements of Swiss monetary authorities' from this week have confirmed maintenance of the franc's rate in relation to euro. EUR/USD drops to its 11-years old minimums. Zloty is clearly weakening, reaching not only the historical records in relation to franc, but also multiple records of weakness in relation to the dollar or pound.

Najważniejsze dane makro (czas CET – środkowoeuropejski). Szacunki danych makro są na podstawie informacji z Bloomberga, chyba że zaznaczono inaczej.

  • 14.00 CET: Basis inflation from Poland (estimations: +0.5 y/y).
  • 14.30 CET: Inflation in USA (estimations: +0.7% y/y; with exclusion of food and fuels +1.7% y/y).
  • 15.15 CET: Industrial production in USA (minus 0.1% in m/m relation).
  • 16.00 CET: Index of consumers' sentiment by University of Michigan (estimations 94.1).

Consequences from SNB decision will last for years

There is no doubt that the events on franc's market will play the main role throughout the upcoming weeks or months. However, we already know that almost 40 percent appreciation of CHF in relation to USD was the biggest movement enforcing the main currency, in the history of FX fluent quotes.

In the upcoming days, we will also witness the comments of financial market's main actors. Yesterday, SNB president did not want to reveal if his decision was consulted with other leading representatives of monetary authorities. On the other hand, the chairwoman of International Monetary Fund in her interview for CNBC was surprised with the Swiss decision and claimed that nobody ever contacted her in this matter.

When leading central banks undertake some important decisions for the global economy, they consult up to date, because their actions have many consequences. We could have observed that yesterday – the reduction of prices on stock markets, the euro weakening, escape from risk, etc.

However, currently it is the central banks' credibility which will suffer the most. It is due to small efficiency of their policy. They were creating the sentiments during the years of crisis, and were often the “last resort” for the increase of risk aversion. This week, in his interview for Reuters, SNB vice-chief Jean-Pierre Danthine said, that “maintenance of minimal exchange rate for franc and euro must remain the main element of our monetary policy”. Three days later the Swiss National Bank published a statement about SNB resigning from maintaining EUR/CHF on the level of 1.20. How will the market approach the comments of monetary authorities after such events?

The consequence of such actions should be theoretically a decrease of trust for Swiss financial system. After all the monetary authorities from Zurich “manoeuvred” the investors of entrepreneurs. Theoretically the capital located there, should outflow and wear off franc in a long term. However, reality is much more complicated. Highly effective economy of Switzerland will survive the upcoming crisis quarters. Even if it will reach a few percentage deflation or a negative economic increase, it will remain a leading player on the international arena.

Definitely more problems may touch those central banks which are defending the countries with economies less shoch-resistant. It may concern e.g. EBC or BOJ. Another group of countries that will lose on the recent disturbance, are the emerging markets – including Poland. Omitting the matter of currency credits, can the local or foreign investors be currently certain of NBP or Ministry of Finance policy, if the mainstay of financial markets decided for such a surprising move?

Bigger risk will be for a longer time visible in lower evaluation of zloty, bigger pressure for risk on originating instruments, and it is not excluded, that it will also convert on the global decrease of foreign investments, or drop of commerce dynamics.

11-year-low of EUR/USD

Resignation from maintaining the exchange rate of EUR/CHF on the level of 1.20, is definitely a negative information for EUR/USD. Up until now one could be certain, that SNB will stabilize the main currency pair's rate, by purchasing euro. It did not mean, that it will stop its depreciation, but without the participation of the Swiss, this movement would certainly be stronger.

EUR/USD in recent 15 years

Chart Source: Bloomberg. Drops of EUR/USD means weakening of the European currency in relation to the dollar.

That was the market participants' interpretation of the facts. Transfer of means to the American currency caused, that EUR/USD dropped below the limit of 1.1600, and reached its 11-years old pits. Considering next week's decision of European Central Bank about the increase of quantitative easing operation, only the announcement about stopping this procedure, can help the common currency.

Few words about the foreign market

Although today's macroeconomic data from USA are important in the context of monetary policy conducted by Fed, they should not clearly change the evaluations on the currency market. Investors will rather wonder, how will the Americans or European monetary authorities react, on what has happened in Switzerland. Short term return element, would be the suggestions about stopping QE operation in Europe.

Conference and deflation pushed on further stage

The perspective of maintaining the interest rates on current level probably until March, and yesterday's data from GUS about deepening deflation are currently totally ignored by the market. Our currency is in the centre of attention, due to the moves of the franc and obligations of our local, owners of credits denominated in franc.

Most of the publications mark, that the economy is stable. However, we can also hear the opinions indicating the weakness of banks, that have a significant exposition on credits denominated in CHF, and general increase of aversion towards risk in the region.

It also converts on the behaviour of EUR/PLN, USD/PLN or GBP/PLN. The last two pairs, have reached yesterday the highest minimums from many years, and at the moment there are no reasons, to count on a deeper correction.


Currently it is difficult to count on a significant appreciation of the zloty in relation to franc. One should not expect any bigger intervention from NBP, because in current situation of the increase of aversion towards risk, the euro rate in against the zloty, does not clearly differ from the levels of balance. However, more aggressive commitment of the monetary authorities, could cause more damage than advantages. It goes for the financial market, as well as real economy.

We should also not count at the moment, that franc will wear off significantly in relation to euro. To observe the approach of EUR/CHF under 1.10, which would convert on decrease of CHF/PLN below 4.00, the market would need to receive the information about another purchase of euro by SNB, and putting the operation of QE in Europe on-hold. Then a decrease of franc's value could be really generated. In this moment however, it is difficult to consider it as a basis scenario, and for now we unfortunately have to accept, that the Swiss currency costs over four zlotys.

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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