Daily analysis 22.08.2016

, author:

Marcin Lipka

Stanley Fisher is slightly hawkish. However, his statement lacked direct references to the current monetary policy. Janet Yellen is in the center of attention due to the meeting in Jackson Hole which is planned for Friday. The zloty remains weak and the EUR/PLN remains at the level of 4.30.

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 have a significant impact on the analyzed currency pairs.

Fisher's testimony

Stanley Fisher's testimony during the conference that was organized by “The Aspen Institute”, was the most important information from the past weekend. It was more hawkish than the consensus from the voting Fed members that has been presented in previous minutes.

The Federal Reserve vice-chairman mostly took note of a positive condition of the labor marked. In 2016, it has creased the average of 185k new workplaces each month. Fisher also took note that inflation is reaching its target. Moreover, the latest GDP reading underestimate the economic growth due to a significant supply correction.

On the other hand, the FOMC representative completely omitted the matter of current interest rates, as well as scale and date of the monetary tightening. Thus, a relatively hawkish tone of Fisher's statements is a result of focusing on positive elements from the American economy and ignoring hypothetical dangers. However, it's worth keeping in mind that Fisher is considered as one of the most hawkish governors in the Fed.

The rest of the testimony mainly referred to the long-term matters, which are productivity, as well as neutral level of interest rates. These elements are consistent with a wide discussion of the Fed representatives. It is to estimate whether the 3% level would mean balance for the future interest rates, or is this limit much lower. In conclusion, Fisher's testimony can be considered as slightly hawkish, but not crucial regarding the USD evaluation.

Janet Yellen in center of attention

This month's main event will most likely be Janet Yellen's testimony in Jackson Hole on Friday. The entire series of testimonies from the central bankers at the meeting that will be organized in the mountain resort of the state of Wyoming, will be focused on projection of monetary policy's frames.

This may suggest that the FOMC chairwoman will weigh in on the last discussion. It will concern the target level of interest rate that is neither stimulative for the economy, nor does it cause its chilling. Views regarding this topic were presented by James Bullard (his model assumes one rate hike by 25 base case points until the end of 2018) and John Williams during the past few months. A short analysis regarding this topic has been published in Brookings Institution by the former Federal Reserve chairman at the beginning of August as well.

All of these documents show that the neutral interest rate is probably below the current Fed consensus (3%). This may mean that interest rates may remain lower than expected in the long-term. This information is negative for the future USD evaluation.

Another element that has been appearing during recent discussions, is a wider role of fiscal policy. It is to allow an increase in general economic productivity by investing in infrastructure or studies and development. If this concept begins to dominate, it may mean a slightly higher inflation in the future, as well as a decrease in monetary policy's impact. This is a positive element for the USD.

Yellen's suggestions regarding the nearest FOMC actions will be most significant in the short-term. The only question is, will the Federal Reserve chairwoman really want to suggest sooner moves of interest rates. If she doesn't do this, it will most likely to be interpreted as a negative element for the dollar. This scenario seems to be the most likely for the time being.

In conclusion, the lack of more definitive suggestions from Yellen regarding monetary tightening should be negative for the USD, especially that other FOMC members have recently started to build expectations regarding interest rates.

Zloty remains under pressure

Polish currency remains under pressure of last week's weaker data from the Polish economy. Worse than expected industrial production and retail sales, increase the probability of interest rates reduction in Poland as well. Moreover, there has been a slight deterioration of the global sentiment, due to an average session in the USA (especially its first part) that caused the EUR/PLN to test the area of 4.3150.

Today, the euro costs approximately 4.30. We may assume that this is a certain balance level, considering the local, as well as the global situation. We don't expect a clearer deflection from this level, especially that there is no significant macro data planned for the forthcoming hours.

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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