Daily analysis 25.09.2015

, author:

Marcin Lipka

Two key hints in Yellen's statement give some clarity regarding the FOMC approach. Norwegian Central Bank on monetary policy and China. The zloty takes advantage from better global sentiment on capital markets.

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

  • 14.30: Final GDP reading from the US (survey: +3.7% q/q, annualised).
  • 15.45: Preliminary PMI reading from the US (survey: 55.6 points).
  • 16.00: University of Michigan consumer confidence (survey: 86.5 points).

Important Yellen's statement

Despite the fact that Janet Yellen's University of Massachusetts statement was almost an hour long, had more than 20 pages and bibliography equal to a degree paper investors should focus on two key hints.

The first one notes that Yellen is in the camp which would like to hike interest rate later this year. This clear message should cut speculations by some economists that the Fed's chief might have been in a group of four FOMC members who would like to keep the benchmark unchanged for the whole 2015.

Another important outcome has also the global implications. “The Committee is monitoring developments abroad, but we do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy”

This clarification was important because after the last meeting the Committee was really focused on the foreign issues especially in Asia and in Latin America. There is also another outcome. The Fed may assume that the Chinese slowdown will not be as deep as some economists speculate and the downturn in other EM countries may be not as severe as the slump of some currencies suggest.

Regarding Yellen's impact on the EUR/USD there was around 100 pips slide since the yesterday closing. But the depreciation should be enough to bring the pair close to fair value taking into account the current environment. Combining Yellen's comments with Draghi's statement it is possible that the leading central banks wants to calm markets after some of their comments increased the volatility.

Norwegian Central Bank on China

Yesterday the Norges Bank trimmed interest rates and suggested another cut within incoming year. Additionally comments from the governor on Bloomberg TV suggested that through the currency rate Norway wants to be more competitive abroad and would like to diminish negative effects from lower crude prices. As a result the EUR/NOK is close to the highest levels in history excluding some moments during 2008/2009 crises and some volatility spikes at the end of last year.

Inside the Inflation Report published with the interest rate decision there was a short analysis on China. Norway claims that Beijing growth is “projected to slow gradually to 6% at the end of the projection period”. If this estimate turns out to be true it draws much better future for China that some economist claims.

The foreign market in a few sentences

Yellen's comments and Draghi's statement should stabilize the situation on major currency pairs especially that in the coming days there are no key macroeconomic data and statements from the central bank officials.

The zloty is getting weaker

Comments from Yellen and its positive outcome on capital markets combined with weaker euro in relation to major currencies should push the EUR/PLN below 4.22 mark. Additionally explaning the key issues by the central bank officials should give some breathing space to the zloty both regarding the euro and the dollar.

There is exactly one month to the parliamentary election and it is possible that market participants may start some positioning before the voting. However, huge move are not expected and the victory by one of the two leading parties should not significantly deviate the EUR/PLN rate and the changes will not higher than 5 zloty-cent. The worse outcome is an environment when none of the party is able to form a stable government. It might push the EUR/PLN more than 5 zloty-cent higher.

The expectations don't take into account incoming changes with in the Monetary Committee, because it is still not certain who is going to be inside the central bank. We can only conclude that the composition will be more dovish but it should already be partly priced-in both in the currency and interest rate market.

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

Range EUR/USD 1.1150-1.1250 1.1250-1.1350 1.1050-1.1150
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.7500-3.7900 3.7200-3.7600 3.7800-3.8200
Range CHF/PLN 3.8400-3.8800 3.8400-3.8800 3.8400-3.8800

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

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.7800-5.8200 5.7600-5.8000 5.8000-5.8400

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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