Afternoon analysis 02.02.2017

The pound lost its value after publication of the announcement from the Bank of England. The American data confirms a positive condition in the labor market. Tomorrow will significant for the dollar. The USD/PLN is clearly below 4.00 and the pound is testing the level of 5.00 PLN.

Pound is under pressure

Judging only by the headlines of the Bank of England’s announcement, one may wonder why the pound lost approximately 1% of its value. The BoE increased the economic growth perspective for 2017 from 1.4% to 2.0%. Moreover, some members of the BoE expressed their concern regarding inflation.

These two arguments should strengthen the pound and the GBP/USD reached the level of 1.27 shortly after the announcement was published. However, the pound’s value started decreasing later. It appears most likely that this was caused by the lack of increase in inflation perspective for the forthcoming quarters.

Some economists expected that inflation projections will show an increase in the consumer prices up to 3% in 2017 or 2018. However, CPI will remain at the level of approximately 2.7%. This may suggest that the BoE may be less eager to change its current mild monetary policy to a more neutral attitude.

Another argument in favor of the lack of inflation pressure is a reduction in neutral unemployment rate. Previously, the BoE estimated that unemployment rate level that would not cause a large inflation pressure is 5%. Currently, the estimation is at the level of 4.5%, which means that the labor market conditions may continue tighten without a large salary pressure. This might have been considered as a dovish element.

Was today’s meeting actually a good excuse for such a significant overvalue of the pound? It most likely was not. However, investors were disappointed with the lack of hawkish signals and they were forced to reduce their expectations regarding an increase in the pound’s value. It’s possible that the GBP/USD will return to its level from before the BoE meeting, especially if the dollar remains weak.

Strong American labor market and strong zloty

The American jobless claims index was yet again near its historical minimum (246k). Due to this, as well as positive ADP reading and an increase in the industrial ISM, we can expect that tomorrow’s payrolls will exceed the estimated 175k.

It’s interesting how the dollar will behave in the case strong readings. Will they cause appreciation of the USD, or will the market remain negative towards the American currency? The more smothered the reaction to tomorrow’s positive data, the larger the risk of the dollar’s further wear-off in the forthcoming days.

Global weakness of both the pound and the dollar, pushed these currencies to the level of 5.00 and 3.98, respectively, against the zloty. However, the EUR/PLN and the CHF/PLN were relatively stable. The zloty’s condition remains positive. However, this is mainly a result of a positive sentiment on the emerging markets, which is confirmed by the fact that the PLN/HUF has not changed significantly since this week’s beginning.