Daily analysis 21.09.2015

, author:

Marcin Lipka

Which central bank is going to be more dovish comparing to previous expectations – The Fed or the ECB? Syriza's solid victory should decrease risks regarding Greece in the following months. Will the zloty benefit from loose ECB and Fed monetary policy.

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

  • 18.30: Peter Praet chief economist speech.
  • 19.00: Dennis Lockhart Federal Reserve Bank of Atlanta president.

Comments from the Fed and the ECB

On Friday and over the last weekend 5 central bankers – three from the Fed and two from the ECB talked about the monetary policy. Both James Bullard and Jeffery Lacker, presidents at their regional Fed branches, were negative about the most recent Committee decision on keeping the interest rates unchanged and were insisting on a hike.

However, these comments were not key to the view on the Fed. Lacker’s approach was already noted in the statement, as he holds the right to vote this year. A hawkish view from Bullard is also well known so it should not have a significant effect on the markets.

Much more important elements were the comments from John Williams, as he represents the Fed's consensus. He kept a view to begin the monetary tightening this year but was much less concerned about the state of the Chinese economy.

Williams has recently visited the world's 2nd largest economy and met with government and private companies’ officials. According to him, Beijing is aware that it is not possible to keep the GDP growth, which was recorded in the last two decades. Currently, China is in a period of transition from economy focused on industrial production and export to a more domestic consumption and service oriented country.

Regarding comments from the ECB there are suggestions both from chief economist Praet and executive member Coeure that the QE might be extended beyond 2016, if inflation fails to meet the ECB target.

As a result, the FX is going to evaluate whether the odds for further monetary loosening in the eurozone outpace the dovish communication from the Fed. Some hints regarding the issue can come from the incoming macro data especially Wednesday's PMIs both from the eurozone and China.

It is also worth noting that currently a better reading from Beijing should give a bigger boost to the dollar than to the euro, as the Fed will proceed the tightening this year if the global economy stabilizes. Solid publications from the euro area should traditionally help the common currency.

Tsipras wins

Syriza received solid support from the Greek election. Tsipras managed to secure 35% votes while the New Democracy got 28%. The left will have to form a coalition with at least one party to form the government. It is possible that the prime minister will invite not only the former partner ANEL to rule the country but also PASOK to diminish some hypothetical problems inside its coalition.

Overall, the election result should be regarded as positive by the markets. Tsipras negotiated the deal with creditors and signed the agreement. Even though everybody remembers that the Prime Ministers is able to withdraw from his promises, the new mandate from society should give him some breathing space to at least start implementing the reforms.

The foreign market in a few sentences

A rapid response for the ECB on the dovish Federal Reserve decision caused the market to remain in the impasse. Further Fed comments and recent data should give some hints on the further EUR/USD. If it turns out that the readings from China are better than expected, the hikes in the monetary policy in the US should begin this year and despite dovish comments from the Fed the EUR/USD should move southward.

Zloty remains should benefit from dovish central banks' comments

It is possible that the zloty can benefit from more dovish comments from both the ECB and the Fed. It would be a logical reaction. Taking into account that interest rates in Poland remain unchanged and assuming an additionally looser monetary policy in the US than previously expected and longer QE in the eurozone the domestic currency should be supported.

There are also some threats regarding the PLN appreciation perspective – recent much weaker macroeconomic data and incoming election. But the monetary policy is one of the strongest drivers for the currency markets in the short and medium term, so further suggestions on longer QE from the EBC may quickly push the EUR/PLN even below 4.15.

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

Range EUR/USD 1.1250-1.1350 1.1350-1.1450 1.1150-1.1250
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.7000-3.7400 3.6600-3.7000 3.7400-3.7800
Range CHF/PLN 3.8200-3.8600 3.8200-3.8600 3.8200-3.8600

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750
Range GBP/PLN 5.7200-5.7600 5.7000-5.7400 5.7400-5.7800

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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