Daily analysis 30.05.2017

30.05.2017 12:28|Marcin Lipka

The dollar’s value increase slightly. However, the market continues anticipating the statements from the Federal Reserve members and the macro data. The pound has been trying to work-off a portion of its losses, but surveys are still negative for Theresa May. The zloty has been relatively strong – the EUR/PLN remains below 4.20.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: Consumer expenses and incomes in the USA (estimates: positive 0.4% MoM).
  • 14.30: PCE inflation for April (estimates: 1.7% YOY; excluding fuel and food 1.5% YOY).
  • 15.00: Prices of real estates in twenty of the American cities, according to S&P (estimates: 5.61% YOY).
  • 16.00: Conference Board consumer sentiment index (estimates: 119.8).

Fed and data at the centre of attention

The dollar has been stronger since the morning. However, this doesn’t have to be the beginning of the USD appreciation. Investors continue anticipating the macroeconomic data (inflation, ISM, labour market), as well as the statements from the crucial FOMC representatives (Brainard, Powell). We will know some of this data today.

The market will most likely be extremely susceptible to the data regarding consumer expenses and incomes in the USA. Any inconsistencies with the consensus will be rapidly interpreted in regard of the US economic condition and the forthcoming decision from the Federal Reserve.

The PCE for April may also be very interesting. The baseline CPI for April went down from 2.0% YOY to 1.9% YOY. The PCE for March was at the level of approximately 1.6% YOY. According to Bloomberg’s estimates, this index will go down to 1.5% YOY. However, it’s also possible that the baseline PCE will decrease to approximately 1.4% YOY. This would be its lowest level in five years. Such a scenario would rapidly “temper” the dollar’s attempts to work-off its losses.

The market most likely will also focus on today’s testimony from Lael Brainard, apart from the macroeconomic data. She is a member of the Board of Governors and is considered slightly more dovish than the consensus, but not as much as Bullard, Kashkari or Evans.

Last week’s testimonies from Brainard were more focused on the global situation, as well as on the differences between household expenses. They contained very few remarks regarding the current economic situation or the monetary policy, except for a statement that she doesn’t see progress in regard of the baseline inflation.

Today’s testimony from Brainard will concern economy, as well as the monetary policy. Its potential direction is the most essential. If she interprets the recent economic slowdown as temporary, this will be positive for the dollar. However, remarks about an increased uncertainty regarding the future GDP growth will deteriorate the condition of the American currency. Therefore, the dollar’s behaviour in the forthcoming hours will be determined by Brainard’s message.

Unfavourable surveys for Tories

According to a survey made by Survation for Good Morning Britain, the advantage of Tories over the Labor Party is at the level of 6 percentage points. This is one of the worst estimated results for the Conservative Party, which confirms a significant change in the British political scene.

Today, the S&P Global Ratings estimated that the relationship between The United Kingdom and the European Union will become orderly. Nevertheless, the agency also expects a high level of uncertainty during the negotiations over the next two years. This will be negative for both consumption and investments, and slow down the GDP growth in 2018 down to 1.2%.

Zloty remains stable

The zloty has been fairly strong against the euro. Even though the EUR/PLN had made attempts to go above 4.18 this morning, the pair remained below this level. The USD/PLN also returned below the 3.75 level, in spite of a slight appreciation of the dollar this morning.

Currently, stabilisation is the base case scenario for the EUR/PLN. This situation could change, if both the US macroeconomic data and statements from the FOMC members suggest a fairly hawkish message from the Fed. However, if the readings are mixed, the risk of the zloty’s weakening will remain fairly limited.



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