Daily analysis 20.01.2016

, author:

Marcin Lipka

The pound is under a significant pressure after Mark Carney presentation. The EUR/USD cannot decide for a more visible move. The zloty remains weak after the risk aversion rises.

  • 14.30: Inflation from the US (survey: +0.8% y/y and 0.0% m/m; excluding energy and food +2.1% y/y).
  • 14.30: Building permits from the US (survey: 1.2 million seasonally adjusted annualized data).
  • 14.30: Housing starts from the US (survey: 1.2 million seasonally adjusted annualized data).

The global pound sell off

Since the beginning of the year the pound lost around 4% to the dollar and the cable finished only two sessions higher. Also the trading yesterday ended with hefty losses. The main move was initiated just after Bank of England (BoE) chief Mark Carney presented his statement.

In Summer he claimed that during the turn of the year it would be clear whether it was time to begin interest rate hikes. As a result his yesterday's speech was called “The turn of the year”. However the fist headline which appeared just after the presentation hit the wires was that it is not time to hike the benchmark. Even though the market was expecting that the monetary policy normalization would not begin soon the GBP/USD dropped 200 pips and slided toward 7-year lows. Additionally the pair is just 4% above almost 30-year lows.

From Carney's speech it is worth to note how far from the tightening is the UK economy comparing to the US where the hike decision was already taken. “First, cost pressures are stronger in the US”. “Second, the UK economy is twice as open as the US and is therefore more exposed to global weaknesses, dragging on exports”

Additionally as Carney says “The UK is undergoing the largest fiscal consolidation in the OECD” while the US “fiscal policy is expected to loosen notably over next three years”. As a result the Federal Reserve has more reasons tight the policy than BoE.

Finally Carney also notes that “the Bank of England's control over macroprudential policy reduces to use monetary policy to address financial stability considerations. In concluding remarks he also claimed that “since last summer, progress has been insufficient along these dimensions to warrant tightening of monetary policy”. So it is quite clear that the odds for a hike are low for this year. Moreover if the incoming data fail to meet expectations and the dollar remains strong globally it is possible that the GBP/USD would fall toward 1.35 level, which is the lowest level since mid 80s.


Since around a month the EUR/USD moves around tight range and mainly the global sentiment shapes the pair. When the stock market falls, the odds for hike in the US drop and the dollar weakens what pushes the pair higher.

On the other hand if the sentiment weakens there are opinions that with further capital market slide it would be possible that the ECB decides to loosen monetary policy again. As a result the upward move is limited. The similar approach is presented in the opposite scenario – the better sentiment increase the probability for a hike in the US but eases the odds for monetary loosing in the euro zone.

However, this tendency might be disturbed after the ECB meeting tomorrow. If Mario Draghi stays dovish and suggests another measures in the near future then the EUR/USD appreciation move may be limited even in a scenario of dire market conditions.

The zloty remains under pressure

Today there is additional pressure on the zloty. The EUR/PLN rose around 0.6-0.7% and is traded around 4.47 level while the forint remains stable and weakens around 0.1% to the European currency. It shows how the domestic market is volatile.

The monetary policy makers try to stabilize the situation. After yesterday's comments from governor Belka, and MPC members Kropiwnicki and Glapinski some comments from Gatner were presented in PAP interview. Newly appointed by the Senate MPC member claimed that the interest rates are at reasonable level regarding the actual stable economic situation.

Such comments should stabilize situation but if another wave of global risk threatens markets the EUR/PLN may quickly top 4.50 level. Tomorrow, however, it is worth noting readings from Polish economy. Taking into the account rating cut the retail sales and industrial production would be closely watched.

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.

Return to the main list

See also: