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Daily analysis 23.03.2016

, author:

Marcin Lipka

Statements from other Federal Reserve representatives suggest a strong belief in at least two hikes being made this year. Statements from the vice-chairman of the Hungarian Central Bank cause the sale of forint to continue. The zloty remains stable against the main currencies, and is the strongest against the pound that it’s been since the end of 2014.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • No data which could have a significant impact on analyzed currency pairs.

Fed is becoming more hawkish?

The recent statements from the Federal Reserve representatives were slightly more hawkish than their general and widely discussed attitude towards the monetary policy. We also received new comments from the FOMC members yesterday. They suggested that the Fed is for at least two hikes this year.

Charles Evans is considered as one of the most dovish representatives of the Federal Reserve. He said, regarding the two hikes this year, “that this is quite a good setting.” By supporting two increases in interest rates, Evans finds himself near the consensus. Considering his general skepticism towards the policy of monetary tightening, this statement should be interpreted as more hawkish.

On the other hand, Patrick Harker, the recently assigned FOMC representative, claims that he is not among those who assume two hikes this year. He would like to tighten the monetary policy faster.

Considering the recent statements from the Fed representatives, the calming down of the situation in the raw materials market, better sentiments on the floors of the developed countries, and the most important readings of the American base inflation for many years, it is worth thinking is it possible to review the expectations towards hikes in June?

An argument which could support this scenario is the opinions' distribution (point diagram) which presents the amount of increases in the interest rates this year. The median actually shows only two hikes by 0.25%, but below the median we have only one representative of the Fed. On the other hand, seven out of seventeen representatives of the FOMC are above the median. Thus, it will take just two of them to join the hawkish faction and the median could increase in June.

Also, the debt market is starting to estimate to a certain degree that there is a risk of slightly faster tightening of the monetary policy. After a decrease from the area of 1.00% to 0.82% right after the recent Federal Reserve meeting, profitability of the American two-year treasury bonds reached the level of 0.90% yesterday.

Thus, in forthcoming weeks the investors will clearly focus on the American data, especially the data regarding the labor market and inflation. If it appears that an increase in employment and prices is faster than expected, this could be a good argument for appreciation of the dollar.

Forint may be under further pressure

In yesterday's Afternoon Analysis, we described an easing of the monetary policy in Hungary. It is worth mentioning that interest rates were decreased by 15 base points to 1.2%. This was despite the fact that the signals from the central bank, were suggesting that interest rates will remain at an unchanged level until May.

Today, we found out why eighteen out of nineteen economists surveyed by the Bloomberg agency did not assume changes in the monetary policy. Vice-chairman of the Hungarian monetary authorities, Marton Nagy, said that, “the decision was intended to surprise the market at the beginning of monetary easing cycle.” He also added that, “everything indicates that easing of the monetary policy is necessary.”

In his comment regarding the decisions of the Hungarian monetary authorities, JPMorgan economist Nicolaie Chidesciuc, claimed that, “it is not entirely clear what the scale necessary to reach a 3% goal should be, but it is clear for us that it (central bank – author's footnote) wants a sudden decrease in interest rates.” JPMorgan expects the Hungarian interest rates to decrease to “0.5% or lower.”

It is also interesting when we compare the future interest rates in Hungary to the rates in Poland. Today, the FRA 9X12 contracts (3-month interest rates for nine months) for the forint decrease to 0.83%, while for the zloty they are growing, and they are at the level of 1.46%. In mid-January, they were both near the area of 1.30%. This shows the progressing divergence between the Polish and the Hungarian monetary policy very well. This fact should also support the zloty as a whole, not only against the forint.

Stabilization of the national currency

The Polish national currency remains stable, and quotations of the EUR/PLN are near the limit of 4.25. It is also worth noticing that the Hungarian decision regarding the initiation of monetary easing cycle should be a positive information for the zloty. In this context, the Polish monetary authorities definitely seem more predictable and conservative.

Thus, we can assume that the quotations of the zloty will remain stable in the forthcoming hours. For the time being, there are also no views for an increase in the possibility of a rebound on the pound, which is cheapest since the end of 2014. We can expect the GBP/PLN to remains within the area of 5.40.


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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