Daily analysis 15.09.2017

15.09.2017 12:26|Marcin Lipka

Another strong strengthening of the pound after comments from representatives of the Bank of England. The dollar loses its value, but arguments are appearing for its possible appreciation. The zloty pares a significant part of the recent losses. The EUR/PLN slightly below the 4.28 level. The pound reached 4.85 PLN in the morning.

The most important macro data (CET - Central European Time). Surveys of the macro data are based on information from Bloomberg unless noted otherwise.

  • 2.30 p.m.: US retail sales for August (estimates: + 0.1% MOM, excluding cars and fuels + 0.3% MOM),
  • 3.15 p.m.: Industrial production in the USA (estimates: + 0.1% m / m),
  • 4.00 p.m.: US consumer sentiment in September according to the University of Michigan (estimates: 95 pts).

The pound continues its significant appreciation

Last day for the British currency was characterised by very strong volatility in the pound's rate. Shortly after the statement publication that followed September's meeting of the Bank of England, there was a temporary sell-off of the sterling, when it turned out, that only two members of the British monetary authorities voted to raise interest rates. It was expected that three of BoE representatives could vote for monetary tightening.

The downward pressure on the pound immediately subsided when it appeared that in both, the statement and minutes, a passage suggesting that if the economy behaves as expected,"withdrawing part of the monetary stimulus may be appropriate in coming months to bring inflation back to a sustainable target". This view was supported by a majority of members. The strong announcement of monetary tightening caused an increase in the sterling's value by more than 1% in several dozen minutes.

Marek Carney's statement also helped to further strengthen the sterling's appreciation. The President of the Bank of England said that he was in favour of an interest rate increase. Yesterday's session ended at the GBP/USD pair close to 1,3400 and the GBP/PLN close to 4,81 level.

Today before midday, the market participants also understood in BoE's actions there is quite a coherent plan. A speech published by Gertjan Vlieghe, analyzing more than 20 pages of historical interdependencies between interest rates and the stock market, had included in the last paragraph of the article a passage about supporting the interest rate increases in the coming months.

Vlieghe's opinion resulted in a further pound's appreciation in relation to the dollar and reaching to the 1.36 levels. Also, the GBP/PLN pair continued to increase, exceeding the 4.85 boundary. Overall, the appreciation of the pound against the dollar at its peak point was 3% lower in comparison to yesterday's midday.

On the one hand, such sharp increases in the sterling can "automatically" translate into inflationary pressure and, as a result, reduce the desire for tightening monetary policy. On the other hand, such a clear message from the Monetary Authority on rate hikes may still push the BoE to make that decision even this year (at meeting in November). The Pound may also be supported by an increasingly likely decision to introduce a transitional period between the theoretical and the actual exit from the EU (2-3 years). This would mean that the negative effects of Brexit will be spread over time and may be less noticeable in macroeconomic data than previously thought. For the next week has been scheduled speech by Prime Minister May, who is likely to talk about these issues. In the case of aiming for a gentle Brexit, the pound may still gain value despite its very strong appreciation in recent hours.

The zloty and the US data

The last trading hours can be perceived as successful for the national currency. Around midday, the EUR/PLN pair has been below the 4.28 boundary and listing the zloty's trading against the forint indicates that the weakening effect generated by domestic factors has significantly decreased. Therefore, once again investors are more focused on the global elements (future interest rates in developed economies) rather than on Warsaw's dispute with Brussels or on suggestions for a more accommodative monetary policy from the most dovish members of the Polish MPC.

In the afternoon, the market will begin to assess data from the US (retail sales, industrial production). It is worth noting, however, that yesterday's US inflation readings were quickly ignored despite relatively high readings. Some parts of economists interpreted them as being affected by Hurricane Harvey or Irma.

However, it seems that this influence may last for the following months, and at the same time, the core component was not as strongly disrupted as some thought to be. Fuel prices may still be high, as crude oil quotations are rising and the core CPI has been increased mainly by higher property rental costs, rather than hotel services, which have simply pare the fall from two months ago. As a result, there is an increasing chance that the Federal Reserve will, however, maintain the prospect of a rate hike in December at next week's meeting, which in turn should support the dollar.

 


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