Daily analysis 15.12.2015:
A wide improvement in sentiments on the financial markets. Investors expect the path of hikes presented by the Federal Reserve to be mild. The zloty took advantage of the good sentiments and enforced to every main currency pair.
On Wednesday the Federal Reserve will present its decision regarding interest rates. According to the market consensus the monetary authorities will raise the cost of the loan by 25 base case points.
An increase in interest rates is a foregone conclusion. Basing on the market of terminal contracts, its likelihood is estimated on 76% (the Bloomberg data). This is why expectations regarding a path of an increase are currently of a crucial significance. If the prognoses presented by the Federal Open Market Committee indicate three hikes for next year, this will be a neutral or a positive information for the markets.
Additionally, the Fed chairwoman, Janet Yellen, announced that the central bank's attention will move from the labour market towards inflation. The recent data shows that the employment is very good. The unemployment rate decreased to 5%, which is the lowest level since the beginning of the crisis. Additionally, the recent data regarding employment in non-agricultural sector was very good.
However, it is different in the case of a pace of an increase in prices. The consumers' inflation remains close to the zero level (recently it was 0.2% year on year). This situation is a result of one-off factors. Pace of an increase in prices without including the changing prices of raw materials (the base case inflation) is 1.9%. On the other hand, the PCE inflation which is most significant for the Fed is approximately 1.3%. Here we still can see some limits for the hikes.
Moreover, the Fed can make the forthcoming hikes dependant on the economic data. This will mean that if inflation does not clearly accelerate, the probability of a further tightening can be smaller. In the end, there is still a matter of the strong dollar. If a rate of the American currency is a danger for the export (and due to this for an increase in the GDP), it will also wear off the pressure on hikes.
Today, the dollar wore off to the euro. The EUR/USD rate remains close to 1.10. The American currency is becoming stable to the pound and the yen. We can also see a rebound on the European stock markets. They have returned to the lowest level since the beginning of October. The terminal contracts on the S&P 500 index are also growing.
An improvement in sentiment and the weaker dollar are behind an increase in price of oil. Today, the quotations of this resource took a rebound from the lowest level since the beginning of 2009, and are growing to approximately 37 dollars on the New York stock market. This factor was supportive for the raw materials currencies. Today, the rouble gained to the dollar. However, the USD/RUB rate remains above the level of 70.
In these circumstances, the zloty gains. The Polish currency enforced to every significant pair. Despite this, the zloty remains on a low level. Also, the information from yesterday about the government's plans to keep the deficit in 2016 on the level of 2.8% GDP was supportive for the Polish currency. This is a sign that despite the plans of increasing social expenses, the government does not want to abandon the budget discipline. This factor can support the zloty in a long perspective.
Today we will know the data about inflation. This report is significant in the context of expectations regarding interest rates. The prognoses speak of inflation on a level of minus 0.5%, against minus 0.7% the month before. However, this factor will not have a significant impact on the zloty. The behaviour of the Polish currency will be determined by tomorrow's decision of the Federal Reserve.
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