Afternoon analysis 21.06.2017

Andy Haldane, The Bank of England’s Chief Economist, gave his support to the pound. The Polish currency was slightly stronger than it was in the morning session, however, oil prices and the dollar could influence further movement.

High volatility of the pound

We wrote about the pound slumping against the dollar to its two-month lows in our morning analysis. The situation changed around 1 p.m. CET when hawkish comments from the BoE’s Chief Economist, Andy Haldane, emerged.

He suggested that he was leaning toward rate hikes and favoured withdrawing some of the monetary stimulus in the second half of 2017. According to Haldane, the interest rate should be raised “ahead of market expectations” and a late decision could cause the path of rate rises to be steeper later on.

Comments from the BoE’s Chief Economist brought about an increase in the pound's value – GBP/USD rose to 1.27, while it traded below 1.26 only this morning. The pound’s movement today underlines the fact that it could be susceptible to increased volatility due to political factors or expectations regarding future monetary policy decisions.

We should remind you that the British currency’s value increased as three Monetary Policy Committee’s members voted surprisingly in favour of a rate hike during the last meeting. However, it started to depreciate again as Mark Carney, president of BoE and MPC chairman, ruled out an interest rate increase in the near future.

Zloty was slightly stronger

Although the Polish currency remained subdued in the context of recent days, it gained slightly when coming into the afternoon session. The dollar, euro and franc cost approximately 1 gr less than the morning. However, Haldane’s comments caused the pound to gain against the zloty from 4.79 in the morning to 4.83, which caused GBP/PLN to close in on one-month highs (4.86).

The Weekly Petroleum Report by the EIA could prove important for zloty. Should inventories rise (or draw by less than expected), oil prices could deepen recent lows. Such a scenario, together with a relatively strong dollar, could be negative for the zloty and cause it to lose value. On the other hand, if the market interpreted the report positively and oil prices rose, the Polish currency could undo some recent losses.

Tomorrow’s preview

At 2.30 p.m., the Department of Justice will publish data regarding initial jobless claims and the insured unemployed for the previous week. The initial jobless claims number has been falling gradually since 2009 and is currently close to 44-year lows from the end of February. However, the last few weeks saw the number of insured unemployed remain at low levels. For the last 9 weeks, the number has been under 2 million each week and reached the lowest level since November 1988 in May.

The median expectations suggest that the number of insured unemployed will remain under 2 million for the tenth month in a row (consensus: 1.928 m) and the initial jobless claims could increase by 3k to 240k. A relatively solid report (in line with consensus or better) could help the dollar strengthen. However, the impact could be limited as the most important data from the US labour market, to which the dollar reacts the most, currently comes from average hourly earnings and nonfarm payrolls (the earliest report will be published at the beginning of July).