Afternoon analysis 16.03.2017

16.03.2017 15:34|Bartosz Grejner

The Bank of England left its monetary policy unchanged, but its hawkish message has strengthened the pound. The zloty is strengthened by a better than expected current account reading.

Rate hikes

The Bank of England published the minutes from yesterday’s meeting. The bank’s decisions appeared to be consistent with the consensus. Interest rates were left unchanged (0.25%) and so was the QE program (425 billion pounds a month). However, the British monetary authorities were not unanimous when it comes to the level of interest rates.

Kristin Forbes voted in favor of increasing interest rates by 25 base case points. This was the first vote from the Bank of England in favor of rate hikes since January 2016. This information caused the GBP/USD to reach the level of 1.236. Moreover the BoE increased the forecast regarding the GDP growth for the first quarter to 0.6%.

Moreover, the minutes indicated that some members found it necessary to increase interest rates sooner, as well as to slightly reduce the stimuli package in the next three years. Additionally, some members claimed that they wouldn’t require much positive macro data in order to consider rate hikes.

EUR/PLN goes below 4,30

According to the Polish Central Statistical Office (GUS), salaries in the company sector for February increased 4% YOY and employment in the company sector increased 4.6% YOY. Moreover, Poland’s current account for January, reached the level of 2.46 billion euros. This result appeared to be 2 billion higher than the consensus.

This result was mainly caused by an improvement in the primary income balance (positive 1.9 billion euros MoM). Additionally, the EU funds increased by 2.2 billion euros. Due to this data, the EUR/PLN went below 4.30 and the USD/PLN tested the level of 4.00. However, the zloty lost against the globally stronger pound. The GBP/PLN increased to the 4.95 level.

Tomorrow’s events

The FOMC announcement helped the zloty to gain value. Moreover, tomorrow’s economic data from Poland may cause the zloty’s strengthening to continue. At 14.00, the Polish Central Statistical Office (GUS) will publish the data regarding both the industrial production and the retail sales for February.

In January, the retail sales index increased 11.4% YOY. Currently, the market consensus is at the level of 8.6% YOY. This result would still be near the index’s five-year maximum. When it comes to industrial production, the market consensus is at the level of 2.9% YOY, whereas the result for January was at the level of 9%. However, we need to keep in mind that industrial production has been very volatile on a monthly basis.

If these readings are consistent with the consensus (or higher), this would increase the likelihood of a better than expected GDP growth for the first quarter. Taking into consideration the zloty’s positive reaction to the FOMC announcement, its strengthening may continue due to positive data from the Polish economy. Therefore, the USD/PLN may go near the 4.00 level and the EUR/PLN may be pushed to the level of 4.27.

The GUS will also present the PPI for February. This index has recently been increasing rapidly, in consistency with the global trends. After a 4.1% YoY increase in January, the market currently expects a 4.6% increase. Due to the fact that the high PPI may cause the Monetary Policy Council to abandon its surprisingly dovish tone, the zloty could gain value.

At 15.00, the University of Michigan will publish its consumer trust index. This index increased suddenly along with the election of Doland Trump for the position of the American President. This was a result of his announcements regarding lowering taxes and an increase in infrastructural expenses. Currently, the market consensus is at the level of 97 points (96.3 points in January). However, it’s worth taking note that this index may begin to go down, due to the prolonging anticipation for the above mentioned promises to be fulfilled. Taking into consideration the dollar’s wear off that has been caused by the FOMC announcement, the dollar may become more volatile if the reading is significantly inconsistent with the consensus.

 


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